-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T/5qUYEW2wpjWCo2yZGxqBYvhSTZh+RzgBetbZRPVvdxw8+XjxYkw5LLfvL1GXyO dCW/lPupmqzsteOPZNNyDQ== 0000744126-00-000010.txt : 20000411 0000744126-00-000010.hdr.sgml : 20000411 ACCESSION NUMBER: 0000744126-00-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CHESTER COUNTY CORP CENTRAL INDEX KEY: 0000744126 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 232288763 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12870 FILM NUMBER: 582893 BUSINESS ADDRESS: STREET 1: 9 N HIGH ST STREET 2: PO BOX 523 CITY: WEST CHESTER STATE: PA ZIP: 19381 BUSINESS PHONE: 6106923000 MAIL ADDRESS: STREET 1: 9 NORTH HIGH ST STREET 2: PO BOX 523 CITY: WEST CHESTER STATE: PA ZIP: 19381 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WEST CHESTER CORP DATE OF NAME CHANGE: 19920703 10-K 1 FIRST CHESTER COUNTY COPORATION 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File No. 0-12870 FIRST CHESTER COUNTY CORPORATION (formerly known as FIRST WEST CHESTER CORPORATION) (Exact name of Registrant as specified in its charter) Pennsylvania 23-2288763 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 9 North High Street, West Chester, Pennsylvania 19380 (Address of principal executive offices) Registrant's telephone number, including area code (610) 692-3000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $1.00 per share (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the Common Stock of the Registrant held by non-affiliates as of March 1, 2000, was approximately $66,575,000. The number of shares outstanding of Common Stock of the Registrant as of March 1, 2000, was 4,279,653. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Annual Report to Shareholders for the year ended December 31, 1999, is incorporated by reference into Parts I and II hereof. The Registrant's definitive Proxy Statement for its 1999 Annual Meeting of Shareholders is incorporated by reference into Part III hereof. FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS PAGE PART I: Item 1 - Business 3 Item 2 - Properties 15 Item 3 - Legal Proceedings 16 Item 4 - Submission of Matters to a Vote of Security Holders 16 PART II: Item 5 - Market for the Corporation's Common Equity and Related Stockholder Matters 16 Item 6 - Selected Financial Data 17 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation 17 Item 7A - Quantitative and Qualitative Disclosures About Market Risk Item 8 - Financial Statements and Supplementary Data 17 Item 9 - Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 17 PART III: Item 10 - Directors and Executive Officers of the Corporation 17 Item 11 - Executive Compensation 18 Item 12 - Security Ownership of Certain Beneficial Owners and Management 18 Item 13 - Certain Relationships and Related Transactions 18 PART IV: Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 18 SIGNATURES 21
PART I Item 1. Business. - ------ -------- GENERAL First Chester County Corporation, formerly known as FIRST WEST CHESTER CORPORATION (the "Corporation") is a Pennsylvania business corporation and a bank holding company registered under the Federal Bank Holding Company Act of 1956, as amended (the "BHC Act"). As a bank holding company, the Corporation's operations are confined to the ownership and operation of banks and activities deemed by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") to be so closely related to banking to be a proper incident thereto. The Corporation was incorporated on March 9, 1984, for the purpose of becoming a registered bank holding company pursuant to the BHC Act and acquiring The First National Bank of Chester County, formerly known as The First National Bank of West Chester (the "Bank"), thereby enabling the Bank to operate within a bank holding company structure. On September 13, 1984, the Corporation acquired all of the issued and outstanding shares of common stock of the Bank. The principal activities of the Corporation are the owning and supervising of the Bank, which engages in a general banking business in Chester County, Pennsylvania. The Corporation directs the policies and coordinates the financial resources of the Bank. In addition, the Corporation is the sole shareholder of Turks Head Properties, Inc., formerly known as 323 East Gay Street Corp., a Pennsylvania corporation ("EGSC"), which was formed in 1996 for the purpose of holding the Bank's interest in and operating foreclosed real property until liquidation of such property. BUSINESS OF THE BANK The Bank is engaged in the business of commercial and retail banking and was organized under the banking laws of the United States in December 1863. The Bank currently conducts its business through twelve banking offices located in Chester and Delaware County, Pennsylvania, including its main office. In addition, the Bank operates seven limited service ATM facilities. The Bank is a member of the Federal Reserve System. At December 31, 1999, the Bank had total assets of approximately $512 million, total loans of approximately $354 million, total deposits of approximately $448 million and employed 240 persons, of which 170 were full-time and 70 were part-time. The Bank is a full service commercial bank offering a broad range of retail banking, commercial banking, trust and financial management services to individuals and businesses. Retail services include checking accounts, savings programs, money-market accounts, certificates of deposit, safe deposit facilities, consumer loan programs, residential mortgages, overdraft checking, automated tellers and extended banking hours. Commercial services include revolving lines of credit, commercial mortgages, equipment leasing and letter of credit services. These retail and commercial banking activities are provided primarily to consumers and small to mid-sized companies within the Bank's market area. Lending services are focused on commercial, consumer and real estate lending to local borrowers. The Bank attempts to establish a total borrowing relationship with its customers which may typically include a commercial real estate loan, a business line of credit for working capital needs, a mortgage loan for a borrower's residence, a consumer loan or a revolving personal credit line. The Bank's Financial Management Services Department (formerly, the Trust Department) provides a broad range of personal trust services. It administers and provides investment management services for estates, trusts, agency accounts and employee benefit plans. At December 31, 1999, the Bank's Financial Management Services Department administered or provided investment management services, which possessed assets with an aggregate market value of approximately $430 million. For the year ended December 31, 1999, gross income from the Bank's Financial Management Services Department and related activities amounted to approximately $2.5 million. COMPETITION The Bank's service area consists primarily of greater Chester County, including West Chester and Kennett Square, as well as the fringe of Delaware County, Pennsylvania. The core of the Bank's service area is located within a fifteen-mile radius of the Bank's main office in West Chester, Pennsylvania. The Bank encounters vigorous competition for market share in the communities it serves from community banks, thrift institutions and other non-bank financial organizations. The Bank also competes with banking and financial institutions, some from out-of-state that have opened branches in our market, which are substantially larger and have greater financial resources than the Bank. There are branches of many commercial banks, savings banks and credit unions, including the Bank, in the general market area serviced by the Bank. The largest of these institutions had assets of over $100 billion and the smallest had assets of less than $30 million. The Bank had total assets of approximately $512 million as of December 31, 1999. The Bank competes for deposits with various other commercial banks, savings banks, credit unions, brokerage firms and stock, bond and money market funds. The Bank also faces competition from major retail-oriented firms that offer financial services similar to services traditionally available only through commercial banks without being subject to the same degree of regulation. Mortgage banking firms, finance companies, insurance companies and leasing companies also compete with the Bank for traditional lending services. Management believes that the Bank is able to effectively compete with its competitors because of its ability to provide responsive personalized services and competitive rates. This ability is a direct result of management's knowledge of the Bank's market area and customer base. Management believes the needs of the small to mid-sized commercial business and retail customers are not adequately met by larger financial institutions, therefore creating a marketing opportunity for the Bank. BUSINESS OF TURKS HEAD PROPERTIES INC. Turks Head Properties, Inc. was formed in 1996 to hold the Bank's partnership interest in WCP Partnership. WCP Partnership was formed to facilitate the acquisition, necessary repairs, required environmental remediation and other actions necessary to sell real property located in West Chester, Pennsylvania (the "West Chester Property") which secured a defaulted loan held by the Bank. Turks Head Properties purchased a 62% interest in the mortgage on the West Chester Property in 1996 from the Bank at book value and the Bank immediately contributed the interest in the mortgage to WCP Partnership as capital. Another financial institution contributed the remaining 38% interest in the mortgage to WCP Partnership. WCP Partnership foreclosed on the West Chester Property in 1996. During 1997, the property was liquidated. The proceeds from the liquidation were in excess of the transferred loan amount resulting in a gain which was included in noninterest income. As of December 31, 1998, the WCP Partnership was dissolved. Turks Head Properties, Inc. may be used in the future to hold and administer the Bank's interests in foreclosed real properties. SUPERVISION AND REGULATION General The Corporation is a bank holding company subject to supervision and regulation by the Federal Reserve Board. In addition, the Bank is subject to supervision, regulation and examination by the Office of the Comptroller of the Currency (the "OCC") and secondary regulation by the Federal Deposit Insurance Corporation (the "FDIC"). Federal and state laws impose a number of requirements and restrictions on the operations of the Bank, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the types of services which may be offered, and restrictions on the ability to acquire deposits under certain circumstances. The Bank must also comply with various consumer laws and regulations, and approval of the OCC is required before establishing new branches and for bank mergers if the continuing bank would be a national bank. Certain aspects of the Bank's operation are also subject to state laws. The following sections discuss more fully some of the principal elements of the regulatory framework applicable to the Corporation and the Bank. This discussion is not intended to be an exhaustive description of the statutes and regulations applicable to the Corporation and the Bank and is subject to and qualified by reference to the statutory and regulatory provisions. A change in these statutes, regulations or regulatory policies, or the adoption of new statutes, regulations or regulatory policies, may have a material effect on our business. Bank Holding Company Act The Corporation is required to file with the Federal Reserve Board an annual report and such additional information as the Federal Reserve Board may require pursuant to the BHC Act. Annual and other periodic reports also are required to be filed with the Federal Reserve Board. The Federal Reserve Board also makes examinations of bank holding companies and their subsidiaries. The BHC Act requires each bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire substantially all of the assets of any bank, or if it would acquire or control more than 5% of the voting shares of such a bank. The Federal Reserve Board considers numerous factors, including its capital adequacy guidelines, before approving such acquisitions. For a description of certain applicable guidelines, see this Item "Capital," Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Capital Adequacy," and Part II, Item 8, "Note I -- Capital Requirements" in the consolidated financial statements. The Community Reinvestment Act The Community Reinvestment Act of 1977, as amended (the "CRA"), and the regulations promulgated to implement the CRA are designed to create a system for bank regulatory agencies to evaluate a depository institution's record in meeting the credit needs of its community. The CRA regulations were completely revised in 1995 to establish performance-based standards for use in examining a depository institution's compliance with the CRA (the "revised CRA regulations"). The revised CRA regulations establish new tests for evaluating both small and large depository institutions' investment in the community. For the purposes of the revised CRA regulations, the Bank is deemed to be a large retail institution, based upon financial information as of December 31, 1999. The Bank has opted to be examined under a three-part test evaluating the Bank's lending service and investment performance. The Bank received a "satisfactory" rating in 1999. Dividend Restrictions The Corporation is a legal entity separate and distinct from the Bank. Virtually all of the revenue of the Corporation available for payment of dividends on its common stock, with a par value of $1.00 (the "Common Stock") will result from amounts paid to the Corporation from dividends received from the Bank. All such dividends are subject to limitations imposed by federal and state laws and by regulations and policies adopted by federal and state regulatory agencies. The Bank as a national bank is required by federal law to obtain the approval of the OCC for the payment of dividends if the total of all dividends declared by the Board of Directors of the Bank in any calendar year will exceed the total of Bank's net income for that year and the retained net income for the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. Under this formula, in 1999, the Bank, without affirmative governmental approvals, could declare aggregate dividends in 1999 of approximately $5.1 million, plus an amount approximately equal to the net income, if any, earned by the Bank for the period from January 1, 1999, through the date of declaration of such dividend less dividends previously paid in 1999, subject to the further limitations that a national bank can pay dividends only to the extent that retained net profits (including the portion transferred to surplus) exceed bad debts and provided that the Bank would not become "undercapitalized" (as these terms are defined under federal law). If, in the opinion of the applicable regulatory authority, a bank or bank holding company under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank or bank holding company, could include the payment of dividends), such regulatory authority may require such bank or bank holding company to cease and desist from such practice, or to limit dividends in the future. Finally, the several regulatory authorities described herein, may from time to time, establish guidelines, issue policy statements and adopt regulations with respect to the maintenance of appropriate levels of capital by a bank or bank holding company under their jurisdiction. Compliance with the standards set forth in such policy statements, guidelines and regulations could limit the amount of dividends which the Corporation and the Bank may pay. Capital The Corporation and the Bank are both subject to minimum capital requirements and guidelines. The Federal Reserve Board measures capital adequacy for bank holding companies on the basis of a risk-based capital framework and a leverage ratio. The Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines currently provide for a minimum leverage ratio of Tier I capital to adjusted total assets of 3% for bank holding companies that meet certain criteria, including that they maintain the highest regulatory rating. All other bank holding companies are required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The Federal Reserve Board has not advised the Corporation of any specific minimum leverage ratio under these guidelines which would be applicable to the Corporation. Failure to satisfy regulators that a bank holding company will comply fully with capital adequacy guidelines upon consummation of an acquisition may impede the ability of a bank holding company to consummate such acquisition, particularly if the acquisition involves payment of consideration other than common stock. In many cases, the regulatory agencies will not approve acquisitions by bank holding companies and banks unless their capital ratios are well above regulatory minimums. The Bank is subject to capital requirements which generally are similar to those affecting the Corporation. The minimum ratio of total risk-based capital to risk-adjusted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. Capital may consist of equity and qualifying perpetual preferred stock, less goodwill ("Tier I capital"), and certain convertible debt securities, qualifying subordinated debt, other preferred stock and a portion of the reserve for possible credit losses ("Tier II capital"). A depository institution's capital classification depends upon its capital levels in relation to various relevant capital measures, which include a risk-based capital measure and a leverage ratio capital measure. A depository institution is considered well capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure, adequately capitalized if it meets each such measure, undercapitalized if it fails to meet any such measure, significantly undercapitalized if it is significantly below any such measure and critically undercapitalized if it fails to meet any critical capital level set forth in the regulations. An institution may be placed in a lower capitalization category if it receives an unsatisfactory examination rating, is deemed to be in an unsafe or unsound condition, or engages in unsafe or unsound practices. Under applicable regulations, for an institution to be well capitalized it must have a total risk-based capital ratio of at least 10%, a Tier I risk-based capital ratio of at least 6% and a Tier I leverage ratio of at least 5% and not be subject to any specific capital order or directive. As of December 31, 1999, 1998 and 1997, the Corporation and the Bank had capital in excess of all regulatory minimums and the Bank was "well capitalized." Deposit Insurance Assessments The Bank is subject to deposit insurance assessments by the FDIC's Bank Insurance Fund ("BIF"). The FDIC has developed a risk-based assessment system, under which the assessment rate for an insured depository institution varies according to its level of risk. An institution's risk category is based upon whether the institution is well capitalized, adequately capitalized or undercapitalized and the institution's "supervisory subgroups": Subgroup A, B or C. Subgroup A institutions are financially sound institutions with a few minor weaknesses; Subgroup B institutions are institutions that demonstrate weaknesses which, if not corrected, could result in significant deterioration; and Subgroup C institutions are institutions for which there is a substantial probability that the FDIC will suffer a loss in connection with the institution unless effective action is taken to correct the areas of weakness. Based on its capital and supervisory subgroups, each BIF member institution is assigned an annual FDIC assessment rate per $100 of insured deposits varying between 0.00% per annum (for well capitalized Subgroup A institutions) and 0.27% per annum (for undercapitalized Subgroup C institutions). As of January 1, 1999, well capitalized Subgroup A institutions will pay between 0.00% and 0.10% per annum. In accordance with the Deposit Insurance Act of 1997 an additional assessment by the Financing Corporation ("FICO") became applicable to all insured institutions as of January 1, 1998. This assessment is not tied to the FDIC risk classification. The BIF FICO assessment was 1.296 basis points per $100 in deposits for 1999. For 1999, the Bank's assessment for BIF FICO is $48 thousand. Financial Services Modernization Act of 1999 On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act (the "Act") which will, in general, take effect on March 11, 2000. Among the Act's various provisions are some far-reaching changes governing the operations of companies doing business in the financial services industry. The Act eliminates the restrictions previously placed on the activities of banks and bank holding companies, and through the creation of two new designations, financial holding companies and financial subsidiaries, bank holding companies and national banks permits participation in a wider array of financial services and products (referred to as "financial activities" in the Act), including services and products that had been reserved only for insurance companies and securities firms. In addition, a bank holding company can now affiliate with an insurance company and a securities firm. A "financial activity" is an activity that does not pose a safety and soundness risk and is financial in nature, incidental to an activity that is financial in nature, or complementary to a financial activity. Some examples of "financial activities" which are permitted under the Act are: o Lending, investing or safeguarding money or securities; o Underwriting insurance or annuities, or acting as an insurance or annuity principal, agent or broker; o Providing financial or investment advice; o Underwriting, dealing in or making markets in securities; and o Insurance company portfolio investments. The Corporation meets the qualifications set forth under the Act to elect to become a financial holding company, and the Bank, as a national bank, is authorized by the Act to use "financial subsidiaries" to engage in financial activities, subject to the limitations imposed by the Act. As of the date of this report, we have not considered whether to elect to become a financial holding company, or to engage in any financial activities, or to establish any financial subsidiaries for the Bank. Other Matters Federal and state law also contains a variety of other provisions that affect the operations of the Corporation and the Bank including certain reporting requirements, regulatory standards and guidelines for real estate lending, "truth in savings" provisions, the requirement that a depository institution give 90 days prior notice to customers and regulatory authorities before closing any branch, certain restrictions on investments and activities of nationally-chartered insured banks and their subsidiaries, limitations on credit exposure between banks, restrictions on loans to a bank's insiders, guidelines governing regulatory examinations, and a prohibition on the acceptance or renewal of brokered deposits by depository institutions that are not well capitalized or are adequately capitalized and have not received a waiver from the FDIC. EFFECT OF GOVERNMENTAL POLICIES The earnings of the Bank and, therefore, of the Corporation are affected not only by domestic and foreign economic conditions, but also by the monetary and fiscal policies of the United States and its agencies (particularly the Federal Reserve Board), foreign governments and other official agencies. The Federal Reserve Board can and does implement national monetary policy, such as the curbing of inflation and combating of recession, by its open market operations in United States government securities, control of the discount rate applicable to borrowings from the Federal Reserve and the establishment of reserve requirements against deposits and certain liabilities of depository institutions. The actions of the Federal Reserve Board influence the level of loans, investments and deposits and also affect interest rates charged on loans or paid on deposits. The nature and impact of future changes in monetary and fiscal policies are not predictable. From time to time, various proposals are made in the United States Congress and the Pennsylvania legislature and before various regulatory authorities which would alter the powers of different types of banking organizations, remove restrictions on such organizations and change the existing regulatory framework for banks, bank holding companies and other financial institutions. It is impossible to predict whether any of such proposals will be adopted and the impact, if any, of such adoption on the business of the Corporation. ACCOUNTING PRONOUNCEMENT Impairment of Long-Lived Assets The Corporation adopted the Financial Accounting Standards Board Statement ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" on January 1, 1996. See Note A-5 in Notes to Consolidated Financial Statements included in the Corporation's 1999 Annual Report to Shareholders, incorporated herein by reference. Disclosures about Derivative Instruments and Hedging Activities In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities was issued. Subsequent to this statement, SFAS No. 137 was issued, which amended the effective date of SFAS No. 133 to be all fiscal quarters of all fiscal years beginning after June 15, 2000. Based on the Corporation's minimal use of derivatives at the current time, management does not anticipate the adoption of SFAS No. 133 will have a significant impact on earnings or financial position of the Corporation. However, the impact from adopting SFAS No. 133 will depend on the nature and purpose of the derivative instruments in use by the Corporation at that time STATISTICAL DISCLOSURES The following tables set forth certain statistical disclosures concerning the Corporation and the Bank. These tables should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Corporation's 1999 Annual Report to Shareholders, incorporated herein by reference. FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES RATE VOLUME ANALYSIS (1)
Increase(decrease) in net interest income due to: ------------------------------------------------- Volume (2) Rate (2) Total Volume (2) Rate (2) Total ---------- -------- ----- ---------- -------- ----- (Dollars in thousands) 1999 Compared to 1998 1998 Compared to 1997 INTEREST INCOME Federal funds sold $ (306) $ (16) $ (322) $ 138 $ (10) $ 128 Interest bearing deposits in banks - - - (12) - (12) ------ ------ ------ ------ ------ ----- Investment securities Taxable 1,902 262 2,164 244 (410) (166) Tax-exempt(3) 47 (6) 41 (42) 4 (38) ------ ------ ------ ------ ------ ----- Total investment securities 1,949 256 2,205 202 (406) (204) Loans Taxable 1,076 (1,588) (512) 2,035 (198) 1,837 Tax-exempt(3) (53) (24) (77) (205) 32 (174) ------ ------ ------ ------ ------ ----- Total loans(4) 1,023 (1,612) (589) 1,830 (167) 1,663 ------ ------ ------ ------ ------ ----- Total interest income 2,666 (1,372) (1,294) 2,158 (582) 1,575 ------ ------ ------ ------ ------ ----- INTEREST EXPENSE Savings, NOW and money market deposits 647 (339) 308 323 (46) 277 Certificates of deposits and other time 536 (648) (112) 714 18 732 ------ ------ ------ ------ ------ ----- Total interest bearing deposits 1,183 (987) 196 1,037 (28) 1,009 Securities sold under repurchase agreements (10) 4 (6) (181) 16 (165) Other borrowings 259 (41) 218 (76) 15 (61) ------ ------ ------ ------ ------ ----- Total Interest expense 1,432 (1,023) 409 780 3 783 ------ ------ ------ ------ ------ ----- Net Interest income $ 1,234 $ (349) $ 885 $ 1,378 $ (585) $ 792 ====== ====== ====== ====== ====== ===== NOTES: - ----- (1) The related average balance sheets can be found on page 25 of the Corporation's 1999 Annual Report to Shareholders. (2) The changes in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. (3) The indicated changes are presented on a tax equivalent basis. (4) Non-accruing loans have been used in the daily average balances to determine changes in interest due to volume. Loan fees included in the interest income computation are not material.
FIRST CHESTER COUNTY CORPORATION LOAN PORTFOLIO BY TYPE AT DECEMBER
(Dollars in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Amount % Amount % Amount % Amount % Amount % ------ - ------ - ------ - ------ - ------ - Commercial loans $ 95,820 27% $ 85,110 27% $ 93,914 30% $ 87,932 34% $ 86,686 36% Real estate - construction 15,266 4% 13,439 4% 17,256 5% 11,447 4% 9,372 4% Real estate - other 152,174 43% 133,191 42% 117,953 37% 109,179 41% 100,814 41% Consumer loans (1) 55,520 16% 62,481 19% 66,753 21% 39,803 15% 33,836 14% Lease financing receivables 35,558 10% 26,174 8% 23,023 7% 16,221 6% 11,879 5% ------- ------- ------- ------- ------- Total gross loans $354,338 100% $320,395 100% $318,899 100% $264,582 100% $242,587 100% Allowance for possible loan losses(2) $ (6,261) $ (5,877) $ (5,900) $ (5,218) $ (4,506) ------- ------- ------- ------- ------- Total net loans(2) $348,077 $314,518 $312,999 $259,364 $238,081 ======= ======= ======= ======= ======= NOTES: (1) Consumer loans include open-end home equity lines of credit and credit card receivables. (2) The Corporation does not breakdown the allowance for possible loan losses by area, industry or type of loan because the evaluation process used to determine the adequacy of the reserve is based on the portfolio as a whole. Management believes such an allocation would not be meaningful. See pages 29-30 of the Corporation's 1999 Annual Report to Shareholders for additional information. (3) At December 31, 1999 there were no concentrations of loans exceeding 10% of total loans which is not otherwise disclosed as a category of loans in the above table.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES MATURITIES AND RATE SENSITIVITY OF LOANS DUE TO CHANGES IN INTEREST RATES AT DECEMBER 31, 1999 (1) (2)
Maturing Maturing After 1 Year Maturing Within And Within After (Dollars in thousands) 1 Year (3) 5 Years 5 Years Total -------- ------------ -------- ----- Commercial loans $73,137 $6,263 $16,420 $ 95,820 Real Estate - construction 19,353 -- -- 19,353 ------ ----- ------ ------- Total $92,490 $6,263 $16,420 $115,173 Loans maturing after 1 year with: - --------------------------------- Fixed interest rates $6,263 $16,420 Variable interest rates -- -- ----- ------ Total $6,263 $16,420 ===== ====== NOTES: - ----- (1) Determination of maturities included in the loan maturity table are based upon contract terms. In situations where a "rollover" is appropriate, the Corporation's policy in this regard is to evaluate the credit for collectability consistent with the normal loan evaluation process. This policy is used primarily in evaluating ongoing customer's use of their lines of credit with the Bank that are at floating interest rates. (2) This data excludes real estate-other loans, consumer loans and lease financing receivables. (3) Demand loans and overdrafts are reported maturing "Within 1 Year". Construction real estate loans are reported maturing "Within 1 Year" because of their short term maturity or index to the Bank's prime rate. An immaterial amount of loans has no stated schedule of repayments.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES INVESTMENT SECURITIES YIELD BY MATURITY AT DECEMBER 31, 1999
Due over Due over Due 1 year 5 years Due Within Through Through Over (Dollars in thousands) 1 year 5 years 10 years 10 years Total ------ -------- -------- -------- ----- Held-to-Maturity U.S. Treasury -- -- -- -- -- U.S. Government agency -- -- -- -- -- Mortgage-backed securities (1) -- 195 -- 46 241 State and municipal (2) 476 480 1,100 -- 2,056 Corporate securities 2,104 -- -- -- 2,104 Asset-backed (1) -- -- -- -- -- ----- ------ ------ ------ ------- 2,580 675 1,100 46 4,401 ----- ------ ------ ------ ------- Available-for-Sale U.S. Treasury 996 3,024 -- -- 4,020 U.S. Government agency -- -- 1,991 -- 1,991 Mortgage-backed securities (1) -- 3,914 14,641 58,446 77,001 State and municipal (2) -- 755 523 -- 1,278 Corporate securities -- 2,492 12,327 1,503 16,322 Asset-backed (1) -- -- 618 6,378 6,996 Mutual Funds -- -- -- 1,091 1,091 Other equity securities (3) -- -- -- 4,323 4,323 ----- ------ ------ ------ ------- 996 10,185 30,100 71,741 113,022 ----- ------ ------ ------ ------- Total Investment securities $3,576 $10,860 $31,200 $71,787 $117,423 ===== ====== ====== ====== ======= Percent of portfolio 3.05% 9.25% 26.57% 61.14% 100.00% ==== ==== ===== ===== ====== Weighted average yield 6.27% 6.09% 6.09% 7.72% 7.09% ==== ==== ==== ==== ==== NOTES: - ----- (1) Mortgage-backed and Asset-backed securities are included in the above table based on their contractual maturity. (2) The yield on tax-exempt obligations has been computed on a tax equivalent basis using the Federal marginal rate of 34% adjusted for the 20% interest expense disallowance. (3) Other equity securities having no stated maturity have been included in "Due over 10 years".
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES INVESTMENT SECURITIES AT DECEMBER 31,
1999 1998 1997 -------------------- ------------------ ------------------- (Dollars in thousands) Book Market Book Market Book Market Value Value Value Value Value Value ----- ----- ----- ----- ----- ----- Held-to-Maturity U.S. Treasury $ -- $ -- $ -- $ -- $ 1,493 $ 1,494 U.S. Government agency -- -- -- -- -- -- Mortgage-backed securities 241 236 859 860 1,519 1,520 State and municipal 2,057 2,200 2,907 3,069 3,955 4,081 Corporate securities 2,104 2,099 3,110 3,144 4,115 4,129 Asset-backed -- -- 530 533 1,000 1,013 Mutual funds -- -- -- -- -- -- Other equity securities -- -- -- -- -- -- ------- ------- ------- ------- ------ ------ $ 4,402 $ 4,535 $ 7,406 $ 7,606 $12,082 $12,237 ======= ======= ======= ======= ====== ====== Available-for-Sale U.S. Treasury $ 3,969 $ 3,969 $ 5,019 $ 5,019 $ 6,528 $ 6,528 U.S. Government agency 1,827 1,827 -- -- 7,392 7,392 Mortgage-backed securities 74,090 74,090 77,516 77,516 47,688 47,688 State and municipal 1,230 1,230 497 497 -- -- Corporate securities 10,669 10,669 6,262 6,262 1,000 1,000 Corporate CMO's 4,726 4,726 -- -- -- -- Asset-backed 6,874 6,874 8,760 8,760 -- -- Mutual Funds 1,015 1,015 1,039 1,039 1,042 1,042 Other equity securities 4,238 4,238 3,287 3,287 1,866 1,866 ------- ------- ------- ------- ------ ------ $108,638 $108,638 $102,380 $102,380 $65,516 $65,516 ======= ======= ======= ======= ====== ======
MATURITIES OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS, $100,000 OR MORE, AT DECEMBER 31, 1999 Due Within Over 3 Months Over 6 Months Due Over (Dollars in thousands) 3 Months Through 6 Months Through 12 Months 12 Months Total ---------- ---------------- ----------------- --------- ----- Certificates of Deposit $100,000 or more $ 11,340 $ 4,215 $ 4,125 $ 7,877 $27,556
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES EFFECT OF NONACCRUING LOANS ON INTEREST FOR YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1999 1998 1997 1996 1995 - ---------------------- ---- ---- ---- ---- ---- Interest income which would have been recorded (1) $ 89 $ 129 $ 64 $ 42 $ 103 Interest income that was received from customer -- 25 37 1 172 ---- ---- ----- ----- ----- Total contractual interest for nonaccruing loans not collected $ 89 $ 104 $ 27 $ 41 $ (69) ==== ==== ===== ===== ===== NOTES: (1) Generally the Bank places a loan in nonaccrual status when principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection.
Item 2. Properties. - ------ ---------- The Bank owns eight properties which are not subject to any mortgages. The Corporation owns one property which is not subject to any mortgage, and which is located at 124 West Cypress Street, Kennett Square, Pennsylvania. In addition, the Corporation leases the Westtown-Thornbury, Exton, Frazer, Kenndal, Crosslands, Lima, Granite Farms, Offices. Management of the Corporation believes the Corporation's and the Bank's facilities are suitable and adequate for their respective present needs. Set forth below is a listing of each banking office presently operated by the Bank, and other properties owned or leased by the Bank and the Corporation which may serve as future sites for branch offices.
Current Date Banking Acquired Offices / Use Address or Opened - ------------- ------- --------- Main Office / Branch 9 North High Street December 1863 and Corporate West Chester, Pennsylvania Headquarters Walk-In Facility / Branch 17 East Market Street February 1978 West Chester, Pennsylvania Westtown-Thornbury / Route 202 and Route 926 May 1994 Branch Westtown, Pennsylvania Goshen / Branch 311 North Five Points Road September 1956 West Goshen, Pennsylvania Kennett Square / Branch 126 West Cypress Street February 1987 Kennett Square, Pennsylvania Exton / Branch Route 100 and Boot Road August 1995 West Chester, Pennsylvania Frazer / Branch 309 Lancaster Avenue August 1999 Frazer, Pennsylvania Former Commonwealth High & Market Streets July 1995 Building / Mortgage Center West Chester, Pennsylvania Kendal at Longwood 1109 E. Baltimore Pike December 1999 Kennett Square, PA 19348 Crosslands 1660 E. Street Road December 1999 Kennett Square, PA 19348 Lima Estates 411 North Middletown Road December 1999 Media, PA 19063 Granite Farms Estates 1343 West Baltimore Pike December 1999 Wawa, PA 19063
Other Date Acquired Properties / Use Address or Opened - ---------------- ------- ------------- Operations 202 Carter Drive July 1988 Center / Operations West Chester, Pennsylvania Matlack Street / 887 South Matlack Street September 1999 Operations West Chester, Pennsylvania Paoli Pike / Parking 1104 Paoli Pike July 1963 West Chester, Pennsylvania Kennett Square / Parking 124 West Cypress Street July 1986 Kennett Square, Pennsylvania Westtown / Operations 1039 Wilmington Pike February 1965 Westtown, Pennsylvania
Item 3. Legal Proceedings. - ------ ----------------- There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation, the Bank or Turks Head Properties, Inc., is a party or of which any of their respective property is the subject. Item 4. Submission of Matters to a Vote of Security Holders. - ------ --------------------------------------------------- None. PART II ------- Item 5. Market for the Corporation's Common Equity and Related Stockholder - ------ Matters. ------------------------------------------------------------------ The Corporation's Common Stock is publicly traded over the counter. Trading is sporadic. Information regarding high and low bid quotations is incorporated herein by reference from the Corporation's 1999 Annual Report to Shareholders, attached as an exhibit hereto. As of March 1, 1998, there were approximately 882 shareholders of record of the Corporation's Common Stock. The Corporation declared cash dividends per share on its Common Stock during each quarter of the fiscal years ended December 31, 1999 and 1998, as set forth in the following table (which have been adjusted for the stock split which occurred on November 24, 1998):
Dividends --------- Amount Per Share ------------------ 1999 1998 ---- ---- First Quarter............................................. $ 0.120 $ 0.110 Second Quarter............................................ 0.120 0.110 Third Quarter............................................. 0.125 0.110 Fourth Quarter............................................ 0.125 0.140 ------ ------ Total................................................... $ 0.490 $ 0.470 ====== ======
The holders of the Corporation's Common Stock are entitled to receive such dividends as may be legally declared by the Corporation's Board of Directors. The amount, time, and payment of future dividends, however, will depend on the earnings and financial condition of the Corporation, government policies, and other factors. Item 6. Selected Financial Data. - ------ ----------------------- Selected financial data concerning the Corporation and the Bank is incorporated herein by reference from the Corporation's 1999 Annual Report to Shareholders, attached as an exhibit hereto. Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------ of Operations. ------------------------------------------------------------------------ Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference from the Corporation's 1999 Annual Report to Shareholders, attached as an exhibit hereto. Item 7A.Quantitative and Qualitative Disclosures About Market Risk - ------- ---------------------------------------------------------- Quantitative and Qualitative Disclosures About Market Risk are incorporated herein by reference from the Corporation's 1999 Annual Report to Shareholders, attached as an exhibit hereto. Item 8. Financial Statements and Supplementary Data. - ------ ------------------------------------------- Consolidated financial statements of the Corporation and the Report of Independent Certified Public Accountants thereon are incorporated herein by reference from the Corporation's 1999 Annual Report to Shareholders, attached as an exhibit hereto. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------ Financial Disclosure. ---------------------------------------------------------------- None. PART III -------- Item 10. Directors and Executive Officers of the Corporation. - ------- --------------------------------------------------- The information called for by this item is incorporated herein by reference to the Corporation's Proxy Statement dated February 15, 2000, for its 2000 Annual Meeting of Shareholders. Item 11. Executive Compensation. - ------- ---------------------- The information called for by this item is incorporated herein by reference to the Corporation's Proxy Statement dated February 15, 2000, for its 2000 Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------- -------------------------------------------------------------- The information called for by this item is incorporated herein by reference to the Corporation's Proxy Statement dated February 15, 2000, for its 2000 Annual Meeting of Shareholders. Item 13. Certain Relationships and Related Transactions. - ------- ---------------------------------------------- The information called for by this item is incorporated herein by reference to the Corporation's Proxy Statement dated February 15, 2000, for its 2000 Annual Meeting of Shareholders. PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - ------- ---------------------------------------------------------------- 1. Index to Consolidated Financial Statements ------------------------------------------
Page of Annual Report to Shareholders ---------------------- Consolidated Balance Sheets Page 36 at December 31, 1999 and 1998 Consolidated Statements of Page 37 Income for the years ended December 31, 1999, 1998 and 1997 Consolidated Statement of Changes Page 38 in Stockholders' Equity and Comprehensive Income for the years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Page 39 Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Pages 40 to 59 Financial Statements Report of Independent Certified Page 61 Public Accountants
The Consolidated Financial Statements listed in the above index, together with the report thereon of Grant Thornton LLP dated January 27, 2000, which are included in the Corporation's Annual Report to Shareholders for the year ended December 31, 1999, are hereby incorporated herein by reference. 2. Financial Statement Schedules ----------------------------- Financial Statement Schedules are not required under the related instructions of the Securities and Exchange Commission, are inapplicable or are included in the Consolidated Financial Statements or notes thereto. 3. Exhibits -------- The following is a list of the exhibits filed with, or incorporated by reference into, this Report (those exhibits marked with an asterisk are filed herewith): * 3(i). Articles of Incorporation. Copy of the Articles of Incorporation ------------------------- of the Corporation, as amended. 3(ii). By-Laws of the Corporation. By-Laws of the Corporation, filed as -------------------------- Exhibit 3 (ii) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998 is incorporated by reference. 10. Material contracts. ------------------ (a) Copy of Employment Agreement among the Corporation, the Bank and Charles E. Swope dated January 1, 1999, filed as Exhibit 10 (a) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 is incorporated by reference. (b) Copy of the Corporation's Dividend Reinvestment and Stock Purchase Plan, filed as an exhibit to the Corporation's registration statement on Form S-3 filed August 8, 1997 (File no. 333-33175) is incorporated herein by reference. (c) Copy of the Corporation's Amended and Restated Stock Bonus Plan, filed as an exhibit to the Corporation's registration statement on Form S-8 filed August 12, 1997 (File no. 333-33411) is incorporated herein by reference. (d) Copy of the Bank's Amended and Restated Supplemental Benefit Retirement Plan, effective date January 1, 1995, is incorporated herein by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. (e) Copy of the Corporation's and the Bank's Directors Deferred Compensation Plan, effective December 30, 1995, is incorporated herein by reference to Exhibit 10(h) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995. (f) Copy of the Corporation's Amended and Restated 1995 Stock Option Plan, filed as an appendix to the Corporation's Proxy statement for the 2000 Annual Meeting of Shareholders as filed with the SEC via EDGAR is incorporated herein by reference. * (g) Copy of Employment Agreement between the Bank and James Duncan Smith (EVP), dated December 1, 1999. Kevin C. Quinn, EVP, and Peter J. D' Angelo, EVP, are also parties to employment agreements with the Bank which are substantially identical to Mr. Smith's. * 13. Annual Report to Security Holders, Form 10-Q or Quarterly Report to Security Holders. The Corporation's Annual Report to Shareholders for the year ended December 31, 1999. With the exception of pages 17-61 and the items referred to in Items 1, 5, 6, 7, 7A, 8 and 16 hereof, the Corporation's 1999 Annual Report to Shareholders is not deemed to be filed as part of this report. * 21. Subsidiaries of the Corporation. First National Bank of Chester County, formerly known as The First National Bank of West Chester, a banking institution organized under the banking laws of the United States in December 1863. Turks Head Properties, Inc., formerly known as 323 East Gay Street Corporation, incorporated, in 1996 in the State of Pennsylvania. * 23. Consents of experts and counsel. Consent of Grant Thornton LLP, dated March 24, 2000. * 27. Financial Data Schedules. A Financial Data Schedule is being submitted with the Corporation's 1999 Annual Report on Form 10-K in the electronic format prescribed by the EDGAR Filer Manual and sets forth the financial information specified by Article 9 of Regulation S-X and Securities Act Industry Guide 3 information and Exchange Act Industry Guide 3 listed in Appendix C to Item 601 of Regulation S-K. (b) Reports on Form 8-K. A Form 8-K was filed by the Corporation on October 15, ------------------- 1999 that reported the Corporation's third quarter earnings for September 20, 1999, filed with the SEC via EDGAR. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST CHESTER COUNTY CORPORATION (Formerly known as FIRST WEST CHESTER CORPORATION) /s/ Charles E. Swope ___________________________ By: Charles E. Swope, President Date: March 29, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Corporation and in the capacities indicated on March 29, 2000. Signature Title --------- ----- /s/ Charles E. Swope President, Chief Executive ______________________________ Officer and Chairman of the Board of Directors Charles E. Swope /s/ J. Duncan Smith Treasurer (Principal ______________________________ Accounting and Financial Officer) J. Duncan Smith (Signatures continued on following page) (Signatures continued from previous page) Signature Title --------- ----- /s/ John J. Ciccarone Director - -------------------------------- John J. Ciccarone /s/ M. Robert Clarke Director - --------------------------------- M. Robert Clarke /s/ Clifford E. DeBaptiste Director - --------------------------------- Clifford E. DeBaptiste /s/ John A. Featherman, III Director - --------------------------------- John A. Featherman, III /s/ John S. Halsted Director - --------------------------------- John S. Halsted /s/ J. Carol Hanson Director - --------------------------------- J. Carol Hanson /s/ David L. Peirce Director - --------------------------------- David L. Peirce /s/ John B. Waldron Director - --------------------------------- John B. Waldron Index to Exhibits The following is a list of the exhibits filed with, or incorporated by reference into, this Report (those exhibits marked with an asterisk are filed herewith): * 3(i). Articles of Incorporation. Copy of the Articles of Incorporation of the Corporation, as amended. ------------------------- 3(ii). By-Laws of the Corporation. By-Laws of the Corporation, filed as -------------------------- Exhibit 3 (ii) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 is incorporated by reference. 10. Material contracts. ------------------ (a) Copy of Employment Agreement among the Corporation, the Bank and Charles E. Swope dated January 1, 1999, filed as Exhibit 10 (a) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 is incorporated by reference. (b) Copy of the Corporation's Dividend Reinvestment and Stock Purchase Plan, filed as an exhibit to the Corporation's registration statement on Form S-3 filed August 8, 1997 (File no. 333-33175) is incorporated herein by reference. (c) Copy of the Corporation's Amended and Restated Stock Bonus Plan, filed as an exhibit to the Corporation's registration statement on Form S-8 filed August 12, 1997 (File no. 333-33411) is incorporated herein by reference. (d) Copy of the Bank's Amended and Restated Supplemental Benefit Retirement Plan, effective date January 1, 1995, is incorporated herein by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. (e) Copy of the Corporation's and the Bank's Directors Deferred Compensation Plan, effective December 30, 1995, is incorporated herein by reference to Exhibit 10(h) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995. (f) Copy of the Corporation's Amended and Restated 1995 Stock Option Plan, filed as an appendix to the Corporation's Proxy statement for the 2000 Annual Meeting of Shareholders as filed with the SEC via EDGAR is incorporated herein by reference. * (g) Copy of Employment Agreement between the Bank and James Duncan Smith (EVP), dated December 1, 1999. Kevin C. Quinn, EVP, and Peter J. D'Angelo, EVP, are also parties to employment agreements with the Bank which are substantially identical to Mr. Smith's. * 13. Annual Report to Security Holders, Form 10-Q or Quarterly ------------------------------------ Report to Security Holders. The Corporation's Annual Report to Shareholders for the year ended December 31, 1999. With the exception of pages 17-61and the items referred to in Items 1, 5, 6, 7, 7A and 8 hereof, the Corporation's 1999 Annual Report to Shareholders is not deemed to be filed as part of this Report. * 21. Subsidiaries of the Corporation. The First National Bank of --------------------------------- Chester County, formerly known as The First National Bank of West Chester, a banking institution organized under the banking laws of the United States in December 1863. Turks Head Properties, Inc.formerly known as 323 East Gay Street Corporation, incorporated in 1996 in the State of Pennsylvania. * 23. Consents of experts and counsel. Consent of Grant Thornton LLP, dated March 24, 2000. * 27. Financial Data Schedules. A Financial Data Schedule is being ------------------------- submitted with the Corporation's 1999 Annual Report on Form 10-K in the electronic format prescribed by the EDGAR Filer Manual and sets forth the financial information specified by Article 9 of Regulation S-X and Securities Act Industry Guide 3 information and Exchange Act Industry Guide 3 listed in Appendix C to Item 601 of Regulation S-K. (b) Reports on Form 8-K. A Form 8-K was filed by the ---------------------- Corporation on October 15, 1999 that reported the Corporation's third quarter earnings for September 20, 1999, filed with the SEC via EDGAR. EX-3.(I) 2 ARITCLES OF INCORPORATION, AS AMENDED COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF STATE CORPORATION BUREAU ARTICLES OF INCORPORATION OF FIRST WEST CHESTER CORPORATION In compliance with the requirements of the Business Corporation Law, approved the fifth day of May, A.D., 1933, as amended, the undersigned, desiring to be incorporated as a business corporation, does hereby certify: Article 1 --------- The name of the Corporation is First Chester County Corporation. Article 2 --------- The location and post office address of the initial registered office of the Corporation in the Commonwealth of Pennsylvania is: Nine North High Street, West Chester, Pennsylvania 19380. Article 3 --------- The Corporation is incorporated under the Business Corporation law of the Commonwealth of Pennsylvania for the following purposes: To engage in and do any lawful act concerning all lawful business for which corporations may be incorporated under the Business Corporation Law of Pennsylvania and to do all things and exercise all powers, rights and privileges which a business corporation may now or hereafter be organized or authorized to do or to exercise under the laws of the Commonwealth of Pennsylvania. Article 4 --------- The term for which the Corporation is to exist is perpetual. Article 5 --------- The aggregate number of shares of capital stock which the Corporation shall have authority to issue is (10,000,000) shares of common stock with a par value of $1.00 per share. Article 6 --------- A. The provisions of this Article 6 shall apply to any of the following transactions (hereinafter referred to as "Business Combinations"): (1) any merger or consolidation of the Corporation or any subsidiary of the Corporation with or into any other corporation, person or other entity which is the owner or beneficial owner, directly or indirectly, of 20% or more of the outstanding voting securities of the Corporation; or (2) any sale or lease or exchange or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Corporation to any other corporation, person or other entity which is the beneficial owner, directly or indirectly, of 20% or more of the outstanding voting securities of the Corporation; or (3) any sale or lease or exchange or other disposition (in one transaction or a series of related transactions) to the Corporation or any subsidiary of the Corporation of any agents having an aggregate fair market value equal to or greater than ten (10%) percent of the Corporation's consolidated stockholders' equity as of the date thereof in exchange for voting securities (or securities convertible into or exchangeable for voting securities, or options, warrants or rights to purchase voting securities or securities convertible into or exchangeable for voting securities) of the Corporation or any subsidiary of the Corporation by any other corporation, person or other entity which is the beneficial owner, directly or indirectly, of 20% or more of the outstanding voting securities of the Corporation; or (4) any reclassification of securities, recapitalization or other transactions designed to decrease the numbers of hollers of the Corporation's voting securities remaining after any other corporation, person or other entity has acquired 20% or more of the outstanding voting securities of the Corporation. A corporation, person or other entity (other than the Corporation or any subsidiary of the Corporation) which is the beneficial owner, directly or indirectly, of 20% or more of the Corporation's outstanding voting securities (taken together as a single class) is herein referred to as the "Acquiring Entity". B. Notwithstanding the fact that by law or by agreement with a national securities exchange or otherwise, no vote, or a lesser vote, of shareholders may be specified or required, the affirmative vote of the holders of at least seventy-five (75%) percent of outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (taken together as a single class) shall be required to approve any Business Combination or any plan or proposal for the liquidation or dissolution of the Corporation which would require or permit a distribution of any surplus remaining after payment of all debts and liabilities o the Corporation to the shareholders in accordance with their respective rights and preferences. C. Notwithstanding the foregoing, if three-fourths (3/4) of the entire Board of Directors (or if there is a person or persons serving on the Board other than Continuing Directors (as hereinafter defined); in which event this requirement shall be for three-fourths (3/4) of the Continuing Directors ) recommends in favor of acceptance of Business Combination or a plan of liquidation or dissolution described in paragraph B of this Article 6, the Board may waive the provisions above requiring a greater percentage of shareholder vote and the same may be effected upon the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (taken together as a single class). If any provision herein requiring a 75% shareholder approval is finally judicially determined invalid, then a Business Combination or plan of liquidation or dissolution must be approved by the affirmative vote of the holders of not less than two-thirds (2/3) of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (taken together as a single class). A "Continuing Director" shall mean a person who was a member of the Board of Directors of the Corporation elected prior to the date as of which any Acquiring Entity acquired in excess of twenty (20%) percent of the Corporation's outstanding voting securities (taken together as a single class), or a person designated (before his initial election as a director) as a Continuing Director by a majority of the then Continuing Directors. Article 7 --------- Any amendment, alteration, change or repeal of these Articles of Incorporation or the By-Laws of the Corporation shall require the affirmative vote of the holders of at least seventy-five (75%) percent of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (taken as a single class); provided, however, that this Article 7 shall not apply to, and such seventy-five (75%) percent vote shall not be required for, and the affirmative vote of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (taken together as a single class) shall be required for, any amendment, alteration, change or repeal recommended to the stockholders by three-fourths (3/4) of the entire Board of Directors (or if there is a person or persons serving on the Board other than Continuing Directors, by three-fourths (3/4) of the Continuing Directors). If any of the foregoing provisions are finally judicially determined to be invalid, then these Articles of Incorporation and the By-Laws of the Corporation may only be amended, altered, changed or repealed by the affirmative vote of the holders of not less than two-thirds (2/3) of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (taken together as a single class). Article 8 --------- The management, control and government of the Corporation shall be vested in a Board of Directors consisting of not less than five (5) nor more than twenty-five (25) members in number, as fixed from time to time by the Board of Directors of the Corporation. The Directors of the Corporation shall be divided into three classes: Class I, Class II and Class III. Each class shall be as nearly equal in number as possible. If the number of Class I, Class II or Class III Directors is fixed for any term of office, it shall not be increased during that term, except by a majority vote of Directors, the term of office of each class shall be three years; provided, however, that the term of office of the initial Class I Directors shall expire at the annual election of Directors by the shareholders of the Corporation in 1985; the term of office of the initial Class II Directors shall expire at the annual election of Directors by the shareholders of the Corporation in 1986; the term of office of the initial Class III Directors shall expire at the annual election of Directors by the shareholders of the Corporation in 1987, so that, after the expiration of each such initial term, the terms of office of one class of Directors shall expire each year when their respective successors have been duly elected by the shareholders and qualified. At each annual election of the Directors by the shareholders of the Corporation held during and after 1984, the Directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the Directors they succeed. A Director must be a shareholder of the Corporation. If a vacancy occurs on the Board of Directors of the Corporation after the first annual election of Directors for the class in which such Director sits, a majority of the remaining Directors shall have the exclusive power to fill the vacancy by electing a Director to hold office for the unexpired term in respect of which the vacancy occurred. Article 9 --------- The shareholders of this Corporation shall not be permitted to cumulate their votes for the election of directors. Article 10 ---------- The Corporation shall indemnify its officers, directors, employees and agents of the Corporation and its subsidiaries to the extent set forth in the By-Laws of the COrporation. Article 11 ---------- The name and post office address of the incorporators and the number and class of shares subscribed by him is: Number of and Name Address Class of Shares - ---- ------- --------------- David B. Harwi 3800 Centre Square West 1 Philadelphia, PA 19102 Common IN TESTIMONY WHEREOF, the incorporator has signed and sealed these Articles of Incorporation this 7th day of March 1984. /s/ DAVID B. HARWI(SEAL) ------------------------ David B. Harwi EX-10 3 EMPLOYMENT CONTRACT EXECUTIVE EMPLOYMENT AGREEMENT FIRST WEST CHESTER CORPORATION THE FIRST NATIONAL BANK OF WEST CHESTER and J. DUNCAN SMITH MacELREE, HARVEY, GALLAGHER, FEATHERMAN & SEBASTIAN, LTD. 17 West Miner Street P.O. Box 660 West Chester, PA 19381-0660 (610) 436-0100 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made this 1st day of December, 1999, by and between THE FIRST NATIONAL BANK OF WEST CHESTER, a wholly owned subsidiary of First West Chester Corporation and a National Banking association with its principal offices located at 9 North High Street, West Chester, Pennsylvania (hereinafter referred to as "Bank) and J. DUNCAN SMITH, of West Chester, Pennsylvania (hereinafter referred to as "Executive"). W I T N E S S E T H: -------------------- WHEREAS, Executive is the Executive Vice President, Financial Support Services Division of the Bank and has served as the Executive Vice President, Financial Support Services Division of the Bank continuously since January 1, 1998 and has served as an executive employee of the Bank continuously since March 15, 1993; and WHEREAS, Executive's leadership skills and services have constituted a major factor in the successful growth and development of Bank; and WHEREAS, BANK desires to employ and retain the experience and financial ability and services of Executive as Executive Vice President, Financial Support Services Division, from the effective date hereof and to prevent any other business in competition with Bank from securing the benefit of his services, background and expertise in the Banking business; and WHEREAS, the terms, conditions and undertakings of this Agreement were submitted to and duly approved and authorized by the Board of Directors of the Bank at a meeting held on or about the 17th day of December, 1 999. NOW, THEREFORE, in consideration of the foregoing recitals, which are hereby incorporated by reference, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. Bank hereby employs Executive, and Executive hereby accepts such employment, under and subject to the terms and conditions hereinafter set forth. 2. Term. Subject to the provisions for termination of this Agreement provided in Paragraph 6 hereof, the term of this Agreement shall be for a period of three (3) years, commencing December 1, 1999, and terminating November 30, 2002 (the "Term"). In the event that the Executive shall continue in the full-time employment of the Bank after such three (3) year period without a written extension of this Agreement, such continued employment shall be for successive annual periods, shall be subject to the terms and conditions of this Agreement, and the period of employment shall include the period during which the Executive in fact so continues in such employment. 3. Compensation. During the Term of this Agreement, Bank shall pay Executive a salary (hereinafter referred to as "Compensation") and provide Executive with life, health and disability insurance coverage, retirement benefits, vacations, bonuses, and other benefits (hereinafter collectively referred to as the "Benefits"), the amounts and nature of which shall be fixed by the President of the Bank from time to time and set forth on the attached Exhibit "A"; provided, however, that in no event shall Executive's Compensation be less than one hundred percent (100%) of the Compensation which he is receiving as of the date of this Agreement and in no event shall Executive's Benefits be less than or materially different from the Benefits he is receiving as of the date of this Agreement. 4. Position and Responsibilities. (a) During the first twelve (12) months of the Term of this Agreement, Executive shall be employed as the Executive Vice President, Financial Support Services Division of the Bank, and it is contemplated by the parties that Executive shall continue to serve as the Executive Vice President, Financial Support Services Division of the Bank throughout the entire Term of this Agreement; provided, however, that in no event shall Executive be employed by the Bank after the first twelve (12) months of this Agreement at a lower position or rank or with substantially diminished authority or responsibilities than Vice President and any such diminution in position or authority shall not be considered a breach of this Agreement. Executive shall devote his full time and efforts solely to the business of Bank and shall diligently, efficiently and effectively perform such duties as shall be assigned to him, which shall consist of the general and active management of the Financial Support Services Division of Bank and such other duties of supervision and management as are generally vested in the office of a financial support services department of a corporation or as are set forth in job descriptions established from time to time by the Board of Directors of the Bank for such offices. Executive shall at all times during the Term of this Agreement refrain from doing any act, disclosing any information or making any statements to any person other than Officers or Directors of Bank which may result in the disclosure of confidential information or adversely affect the good reputation of Bank in the community or which might adversely affect the professional or business relationship between Bank and any business, depositor, borrower or any other person with whom Bank is doing business or is contemplating doing business. (b) Bank shall provide Executive with an office, secretarial assistance and such other facilities and support services as shall be suitable to Executive's position and responsibilities as set forth above and as may be necessary to enable Executive to perform such duties effectively and efficiently. (c) In connection with Executive's employment by the Bank, Executive shall maintain his office at the principal executive offices of Bank located at 9 North High Street, West Chester, Pennsylvania, or at such other Bank office as the President or Board of Directors of the Bank may select within the immediate vicinity of West Chester, Pennsylvania. 5. Breach of Agreement by Bank. If Bank breaches any material provision of this Agreement (specifically including, but not limited to, substantial diminution in the position and authority of Executive as set forth in the preceding paragraphs), Executive may leave the employment of Bank whereupon he shall be under no obligation to perform his duties hereunder and, with the exception of the covenants set forth in Paragraphs 9 and 10 hereof, shall have no further liability or obligations under any provisions of this Agreement. In such event, however, Bank shall be obligated to continue to provide Executive with the Compensation and Health and Life Insurance Benefits provided for herein for a period of one (1) year at the rate, times and intervals at which such Compensation and Health and Life Insurance Benefits are being paid on the date on which Bank commits a breach of this Agreement. However, prior to terminating this Agreement by reason of Bank's breach of any provision of this Agreement, Executive shall first give Bank written notice specifically identifying the manner in which Bank has breached the terms of this Agreement and the approximate date or dates on which such violations have occurred. Bank shall have thirty (30) days from his receipt of such notice within which to cure or correct the effects of such breach and to report in writing to the Executive all steps which have been taken to cure such breach. If Bank shall not have corrected or cured such breach or diligently taken all steps which are necessary to do so within the aforesaid thirty (30) day period, Executive may terminate this Agreement effective immediately upon giving Bank written notice of such termination on or after the 31st day following the date on which notice of the breach was delivered to Bank. 6. Termination. (a) Termination by Executive. Executive may terminate this Agreement by giving the President of the Bank written notice thereof. If Executive terminates this Agreement pursuant to this subparagraph, Executive's obligations under Paragraphs 9 and 10 below shall remain in full force and effect and Bank shall be under no obligation to pay any Compensation or provide any Benefits to Executive following the effective date of such termination, except that Bank shall remain liable to pay Compensation and Benefits which have accrued but which remain unpaid or unfurnished as of the effective date of such termination. (b) Termination for Cause. The Board of Directors or President of the Bank may terminate this Agreement at any time for Cause. "Cause" shall encompass the following: (i) Executive has committed any act of fraud; (ii) illegal conduct or gross misconduct by the Executive, in either case that is willful and results in material and demonstrable damage to the business or reputation of the Bank. No act or failure on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Bank. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board, or the advice of counsel for the Bank, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Bank; (iii) Executive has been convicted of a felony. If Bank terminates this Agreement pursuant to this subparagraph, Executive's obligations under Paragraphs 9 and 10 below shall remain in full force and effect and Bank shall be under no obligation to pay any Compensation or provide any Benefits to Executive following the effective date of such termination, except that Bank shall remain liable to pay Compensation and Benefits which have accrued but which remain unpaid or unfurnished as of the effective date of such termination. (c) Termination for failure to perform duties. If Executive fails to provide the services which are reasonably required of him under Paragraph 4 the terms of this Agreement then the Bank may terminate the Agreement as provided below. However, prior to terminating this Agreement by reason of Executive's failure to provide services hereunder, the Board of Directors or President of the Bank shall first give Executive written notice specifically identifying the manner in which Executive has failed to perform services under this Agreement. Executive shall have thirty (30) days from his receipt of such notice within which to cure or correct the effects of such breach and to report in writing to the Boards of Directors or President of the Bank, whichever gave written notice, all steps which he has taken to cure such breach. If Executive shall not have corrected or cured such deficiencies nor diligently taken all steps which are necessary to do so within the aforesaid thirty (30) day period, the Board of Directors or President of the Bank may terminate this Agreement effective immediately upon giving Executive written notice of such termination on or after the 31st day following the date on which notice of the breach was delivered to Executive. In the event that this Agreement is terminated by Bank pursuant to this subparagraph, Executive's obligations under Paragraph 10 below shall remain in full force and effect after termination, and the obligations under Paragraph 9 below shall remain in full force and effect for a period of one year from the date of termination, and Bank shall be obligated to provide Executive with the compensation and health and life insurance benefits provided for herein for a period of one year on the terms and conditions that such compensation and health and life insurance benefits are being paid on the date on which Executive is terminated. (d) Except as provided in Paragraphs 5 and 6, this Agreement may not be terminated by either party. 7. Expenses . Executive is authorized to incur reasonable expenses for promoting the business of Bank, including expenses for travel, entertainment and similar items on behalf of Bank business. Bank shall reimburse Executive for all such expenses upon the presentation by Executive, from time to time, of an itemized account of such expenditures. 8. Death or Disability. If, during the Term of this Agreement, Executive's physical or mental health shall have become impaired so as to make it impossible or impractical for him to perform the duties and responsibilities contemplated hereunder for a period of at least ninety (90) consecutive days or a total of one hundred and eighty (180) days in a twelve month period, then Bank shall have the right to terminate this Agreement upon fifteen (15) days written notice to Executive. In the event of termination due to disability, Executive shall be entitled to receive all compensation hereunder accrued and unpaid as of the date of termination. In the event of Executive's death during the term of this Agreement or while receiving payments or benefits hereunder, Executive's employment and the Bank's obligations shall terminate thirty (30) days following the date of death, and Executive's estate or personal representative shall be entitled to receive all compensation hereunder accrued and unpaid as of the date of termination. 9. Restrictive Covenant. During the Term of this Agreement and for a period of one (1) year following termination thereof, for any reason whatsoever, Executive shall not, directly or indirectly: (a) be employed in Chester County, Pennsylvania by any other bank or similar financial institution; (b) on behalf of a competing bank or similar financial institution, solicit, engage in, or accept business or perform any services for any organization or individual which at any time during the one (1) year ending with Executive's termination was a Bank client, customer or affiliate, or a source of business with which or who Executive dealt or had any contact during the term of employment; (c) solicit any employee of the Bank for the purpose of inducing such employee to resign from the Bank; nor (d) induce or assist others in engaging in the activities described in subparagraphs (a) through (c) above. 10. Covenant against Disclosure of Confidential Information. During the term of Executive's employment with the Bank and following the voluntary or involuntary termination of Executive's employment with the Bank for any reason whatsoever, Executive shall not use for any purpose or disclose to any person or entity any confidential information acquired during the course of employment with the Bank. Executive shall not, directly or indirectly, copy, take, or remove from the Bank's premises, any of the Bank's books, records, customer lists, or any other documents or materials. The term "confidential information" as used in this Agreement includes, but is not limited to, records, lists, and knowledge of the Bank's customers, suppliers, methods of operation, processes, trade secrets, methods of determination of prices and rates, financial condition, as the same may exist from time to time. 11. Binding Effect. This Agreement shall inure to the benefit of and be binding upon Bank, its successors and assigns, including, without limitation, any person, partnership, bank or corporation which may acquire all or substantially all of the assets or business of Bank or into which Bank may be liquidated, consolidated, merged or otherwise combined, regardless of the identity or form of the surviving entity, and shall inure to the benefit of and be binding upon Executive, his heirs, and personal representatives. Should any of the events referenced in the preceding sentence occur, the compensation and benefits of Executive shall not be reduced to less than that being paid at the time of occurrence of the event. 12. Notice. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by registered mail, return receipt requested, correctly addressed to Executive's residence, in the case of Executive, or to its principal office, in the case of Bank. Copies of all such notices shall simultaneously be personally delivered or sent by United States first class mail, postage prepaid, to John A. Featherman, III, Esquire, MacElree, Harvey, Gallagher, Featherman & Sebastian, Ltd., 17 West Miner Street, West Chester, Pennsylvania, General Counsel to Bank. 13. Waiver of Breach. Waiver by either party of the breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. 14. Vested Benefits. This Agreement shall not limit or in any way affect any benefits which Executive may be entitled to receive under Bank's pension plan or any other benefits in which Executive has a vested interest as of the date of this Agreement. 15. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Bank, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Bank and its successors and assigns. (c) The Bank shall require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Bank expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would have been required to perform it if no such succession had taken place. As used in this Agreement, "Bank" shall mean both the Bank as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. 16. Savings Clause. Should any provision contained herein be determined by decree or court or other judicial body to be illegal or unenforceable, such provision shall be considered null and void and the remainder of this Agreement shall remain in full force and effect and shall be construed without reference to any such provision. Nevertheless, it is the intention of the parties hereto that any such invalid or unenforceable provision shall, if possible, be construed and enforced in such a manner as to make the same valid and enforceable under applicable law and consistent with the reasonable intention of the parties as expressed in such provision. 17. Governing Law. Questions pertaining to the validity, construction and administration of this Agreement shall be determined in accordance with the laws of the Commonwealth of Pennsylvania. 18. Entire Agreement; Modification. This Agreement constitutes the entire understanding and agreement between the parties hereto with regard to the subject matter hereof, and there are no other agreements, conditions, representations or understandings, oral or written, expressed or implied, with regard to the subject of this Agreement. This Agreement may be amended or modified only by a written instrument executed by the parties hereto. WITNESS: THE FIRST NATIONAL BANK OF WEST CHESTER By: /s/Charles E. Swope - ------------------------------ ----------------------------------------- Charles E. Swope, President WITNESS: - ------------------------------ ----------------------------------------- J. Duncan Smith, Executive Vice President Financial Support Services Division EXHIBIT "A" COMPENSATION AND BENEFITS AS OF DECEMBER 1, 1999 1. Annual Salary as of December 1, 1999: $120,000.00 2. Health Insurance: Standard Bank Medical and Dental Insurance Programs. 3. Pension Plan: 401(k) Plan. 4. Salary Continuance (Disability) Policy/Plan: Long-Term disability equal to sixty percent (60%) of salary to a maximum of $60,000.00 per year. 5. Life Insurance: Group Term Life Insurance at three times salary to a maximum of $345,000.00. 6. Supplemental Benefit Pension Plan. 7. Executive Officers Bonus Plan as defined by the Bank's Board of Directors. 8. Five (5) Weeks Paid Vacation. 9. Stock Options as awarded by the Board of Directors. TABLE OF CONTENTS Page 1. Employment............................................................2 2. Term..................................................................2 3. Compensation..........................................................2 4. Position and Responsibilities.........................................3 5. Breach of Agreement...................................................4 6. Termination...........................................................5 7. Expenses..............................................................7 8. Death or Disability...................................................7 9. Restrictive Covenant..................................................8 10. Covenant Against Disclosure of Confidential Information...............8 11. Binding Effect........................................................9 12. Notice................................................................9 13. Waiver of Breach......................................................9 14. Vested Benefits......................................................10 15. Successors...........................................................10 16. Savings Clause.......................................................10 17. Governing Law........................................................11 18. Entire Agreement; Modification.......................................11 EXHIBIT "A"...................................................................12 EX-13 4 ANNUAL REPORT TO SHAREHOLDERS FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES FIVE-YEAR STATISTICAL SUMMARY
(Dollars in thousands, except per share data) December 31 -------------------------------------------------------------- STATEMENTS OF CONDITION 1999 1998 1997 1996 1995 - ----------------------- -------- -------- -------- -------- ------ Assets $511,902 $470,693 $431,368 $397,684 $388,500 Loans 354,338 320,395 318,899 264,582 242,587 Investment securities 113,040 109,786 77,598 97,675 93,511 Deposits 448,433 418,398 374,249 351,266 343,926 Stockholders' equity 38,182 39,723 36,213 33,175 30,692 Financial Management Services assets, at market value 429,597 405,217 348,069 271,212 255,992 Year Ended December31 -------------------------------------------------------------- STATEMENTS OF INCOME 1999 1998 1997 1996 1995 - -------------------- -------- -------- -------- -------- ------ Interest income $ 35,107 $ 33,753 $ 32,114 $ 29,627 $ 28,466 Interest expense 14,543 14,135 13,351 12,135 11,564 ------- ------- ------- ------- ------- Net interest income 20,564 19,618 18,763 17,492 16,902 Provision for possible loan losses 799 911 1,135 1,079 1,666 ------- ------- ------- ------- ------- Net interest income after provision for possible loan losses 19,765 18,707 17,628 16,413 15,236 Non-interest income 5,008 4,687 3,787 3,562 3,497 Non-interest expense 17,506 16,278 14,911 13,632 12,768 ------- ------- ------- ------- ------- Income before income taxes 7,267 7,116 6,504 6,343 5,965 Income taxes 2,050 2,100 1,889 2,038 1,865 ------- ------- ------- ------- ------- Net income $ 5,217 $ 5,016 $ 4,615 $ 4,305 $ 4,100 ======= ======= ======= ======= ======= PER SHARE DATA (1) - -------------- Net income per share (Basic) $ 1.14 $ 1.09 $ 1.00 $ 0.94 $ 0.88 Net income per share (Diluted) $ 1.13 $ 1.07 $ 1.00 $ 0.94 $ 0.88 Cash dividends declared $ 0.49 $ 0.47 $ 0.43 $ 0.38 $ 0.34 Book value $ 8.40 $ 8.61 $ 7.89 $ 7.25 $ 6.72 Basic weighted average shares outstanding 4,571,929 4,609,874 4,580,814 4,569,712 4,673,100 ========= ========= ========= ========= ========= Diluted weighted average shares outstanding 4,624,370 4,676,031 4,619,620 4,584,668 4,673,342 ========= ========= ========= ========= ========= (1) All per share data has been retroactively adjusted for stock splits and stock dividends.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion is intended to further your understanding of the consolidated financial condition and results of operations of First West Chester Corporation (the "Corporation") which intends to change its name to the First West Chester Corporation and its wholly-owned subsidiaries, The First National Bank of West Chester (the "Bank") which intends to change its name to The First National Bank of Chester County and 323 East Gay Street Corp ("EGSC"). It should be read in conjunction with the consolidated financial statements included in this report. In addition to historical information, this discussion and analysis contains statements relating to future results of the Corporation that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can often be identified by the use of forward-looking terminology such as "believes," "expects," "intends," "may," "will," "should" "or anticipates" or similar terminology. These statements involve risks and uncertainties and are based on various assumptions. Investors and prospective investors are cautioned that such statements are only projections. The risks and uncertainties noted below, among others, could cause the Corporation's actual future results to differ materially from those described in forward looking statements made in this report or presented elsewhere by Management from time to time. These risks and uncertainties include, but are not limited to, the following: (a) loan growth and/or loan margins may be less than expected due to competitive pressures in the banking industry and/or changes in the interest rate environment; (b) general economic conditions in the Corporation's market area may be less favorable than expected resulting in, among other things, a deterioration in credit quality causing increased loan losses; (c) costs of the Corporation's planned training initiatives, product development, branch expansion, new technology and operating systems may exceed expectations; (d) volatility in the Corporation's market area due to recent mergers of competing financial institutions may have unanticipated consequences, such as customer turnover; (e) changes in the regulatory environment, securities markets, general business conditions and inflation may be adverse; (f) impact of changes in interest rates on customer behavior; (g) anticipated pressure on net yields; and (h) the impact of changes in demographics on branch locations. These risks and uncertainties are all difficult to predict and most are beyond the control of the Corporation's Management. Although the Corporation believes that its expectations are based on reasonable assumptions, readers are cautioned that such forward looking statements are only projections. The Corporation undertakes no obligation to publicly release any revisions to the forward-looking statements to reflect events or circumstances after the date of this report. EARNINGS AND DIVIDEND SUMMARY In 1999, net income increased $201 thousand or 4.0% to $5.217 million from $5.016 million in 1998. Several factors contributed to the improvement; increases in net interest income and non-interest income, gains on the sale of certain investment securities, a reduction on the effective tax rate and an overall lower provision for loan losses. These factors were partially offset by increased operating expenses during the period. Net income for 1998 increased $401 thousand or 8.7% from $4.6 million in 1997. The 1998 increase was primarily the result of an increase in net interest income and non-interest income, partially offset by increased operating expenses. On a per share basis, 1999 earnings were $1.14, an increase of 4.6% over 1998 earnings of $1.09. On a per share basis, 1998 earnings were 9.0% higher than 1997 earnings of $1.00. Cash dividends per share in 1999 were $0.49, a 4.3% increase over the 1998 dividend of $0.47. Cash dividends per share in 1998 were 9.3% higher than the 1997 dividend of $0.43. In the past, the Corporation's practice has been to pay a dividend of at least 35.0% of net income. The following performance ratios for 1999 remained stable compared to 1998 and 1997 ratios. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PERFORMANCE RATIOS 1999 1998 1997 - ------------------ -------- -------- -------- Return on Average Assets 1.09% 1.14% 1.12% Return on Average Equity 13.30% 13.13% 13.36% Earnings Retained 57.08% 57.26% 57.88% Dividend Payout Ratio 42.92% 42.74% 42.12% The "Consolidated Average Balance Sheet" on page may assist the reader in the following discussion. NET INTEREST INCOME Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income, on a tax equivalent basis, increased 4.5% or $885 thousand, from $19.9 million in 1998 to $20.7 million in 1999, compared to a 4.2% increase or $792 thousand from 1997 to 1998. The increases in net interest income can be attributed to the growth of average interest-earning assets of 9.3% or $38.3 million from 1998 to 1999 and 6.8% or $26.1 million from 1997 to 1998, partially offset by a decrease in the net yield on interest-earning assets. The increases in average interest-earning assets are primarily the result of increased loan and investment activity during the period. While loan demand was light during the first half of the year, the Corporation experienced modest to strong growth during the third and fourth quarters. This increased demand is expected through the first quarter of 2000. Average net yields on interest-earning assets, on a tax equivalent basis, were 4.60% for 1999, and 4.82% for 1998 and 4.94% for 1997. The decrease in the Corporation's average net yield on interest-earning assets in 1999 was primarily the result of a decrease in the average yield earned on its interest-earning assets, partially offset by a decrease in the cost or average yield paid on interest bearing liabilities. The decrease in the average net yield on interest-earning assets was primarily the result of a decrease in the average interest rate on loans. The Corporation anticipates continued pressure on the net yield on interest-earning assets as competition for new loan business remains strong and the cost of incremental deposit growth and other funding sources becomes more expensive. AVERAGE INTEREST RATES (ON A TAX EQUIVALENT BASIS) YIELD ON 1999 1998 1997 - -------- ------ ------ ----- Interest-Earning Assets 7.83% 8.24% 8.39% Interest-Bearing Liabilities 3.99 4.28 4.25 ---- ---- ---- Net Interest Spread 3.84 3.96 4.14 Contribution of Interest-Free Funds 0.76 0.86 0.80 ---- ---- ---- Net Yield on Interest-Earning Assets 4.60% 4.82% 4.94% ==== ==== ==== INTEREST INCOME ON FEDERAL FUNDS SOLD Interest income on federal funds decreased $322 thousand from $436 thousand in 1998 to $114 thousand in 1999. The decrease in 1999 is primarily the result of a $5.6 million decrease in the average federal funds sold, and a 69 basis point (a basis point equals one hundredth of one percent) decrease in rates compared to 1998. In 1998, interest income on federal funds increased $128 thousand to $436 thousand. The increase is primarily the result of a $2.5 million increase in the average federal funds sold, partially offset by a 12 basis point decrease in rates compared to 1997. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTEREST INCOME ON INVESTMENT SECURITIES On a tax equivalent basis, interest income on investment securities, increased $2.2 million or 43.6%, from $5.1 million in 1998 to $7.3 million in 1999, compared to an $204 thousand decrease from 1997 to 1998. The increase in investment interest income from 1998 to 1999 was the direct result of a $32.4 million increase in average investment securities and a 22 basis point increase in the yield on investment securities. The decrease in investment interest income from 1997 to 1998 was the direct result of a 49 basis point decrease in the yield on investment securities, partially offset by a $3.2 million increase in average investment securities. INTEREST INCOME ON LOANS Loan interest income, on a tax equivalent basis, generated by the Corporation's loan portfolio decreased 2.1%, from $28.5 million in 1998 to $27.9 million in 1999. The decrease in interest income for the year was the direct result of a 49 basis point decrease in the rates earned on the loan portfolio, partially offset by an increase in average balances of $11.6 million. This rate reduction can be attributed to increased competition for new and existing loan relationships and the generally lower interest rate environment through the second quarter of 1999 as compared to the corresponding periods in 1998. Interest income, on a tax equivalent basis, generated by the Corporation's loan portfolio increased 6.2%, from $26.8 million in 1997 to $28.5 million in 1998. The increase in interest income during 1998 was attributable to a $20.6 million increase in average loans outstanding, partially offset by a 5 basis point decrease in rates. It is anticipated that pricing pressure will continue to reduce overall loan yields and net interest margins for future time periods. However, increases in the prime interest rate is expected to have a positive impact on interest income. Fee reductions could also negatively affect non-interest income. INTEREST EXPENSE ON DEPOSIT ACCOUNTS Interest expense on deposits increased 1.4% from $13.7 million in 1998 to $13.9 million in 1999. The increase in interest expense on deposits from 1998 to 1999 was the result of increases in average interest-bearing deposit balances of $30.2 million, partially offset by a 31 basis point decrease in the rates paid. The 8.0% increase in interest expense on deposits from 1997 to 1998 was the result of a $22.7 million increase in average interest-bearing deposits and a 2 basis point decrease in rates paid. While total average interest-bearing deposits have grown 9.4% and 7.6% in 1999 and 1998, respectively, the components have not grown proportionately. During 1999, average savings, NOW, and money market deposits increased $20.9 million or 11.4%, while average certificates of deposit and other time deposits increased $9.3 million or 6.7%. During 1998, average savings, NOW, and money market deposits increased $10.3 million or 5.9%, while average certificates of deposit and other time deposits increased $12.4 million or 9.9%. The Corporation's effective rate on interest-bearing deposits changed from 4.21%, 4.27%, 4.29%, and 4.22% in the first, second, third, and fourth quarters of 1998, respectively, to 4.01%, 3.97%, 3.97%, and 4.04% in the first, second, third, and fourth quarters of 1999, respectively. Competition for deposits from other banks and non-banking institutions such as credit unions and mutual fund companies continues to grow. Despite the competition, the Corporation's deposit base continues to grow and growth is expected to continue for future time periods. The Corporation believes it has benefited from customer fallout during the latest wave of merger activity of regional institutions during the early part of 1999. Additionally, growth can be attributed to our new branch sites in the Frazer area, and at the Matlack Training Center and most recently at our four new limited service retirement community branches located in Chester and Delaware counties. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PROVISION FOR LOAN LOSSES During 1999, the Corporation recorded a provision for loan losses of $799 thousand, compared to $911 thousand and $1.14 million in 1998 and 1997, respectively. The decrease in the provision expense can be attributed to the decreased rate in total non-performing assets and by a decrease in charge-offs. Net charge-offs in 1999 were $415 thousand, compared to $934 thousand and $453 thousand in 1998 and 1997, respectively. Net charge-offs as a percentage of average loans outstanding were 0.13%, 0.29%, and 0.15% for 1999, 1998, and 1997, respectively. The allowance for loan loss was $6.26 million or 1.77% of loans outstanding at December 31, 1999. NON-INTEREST INCOME Total non-interest income increased $321 thousand or 6.8%, from $4.7 million in 1998 to $5.0 million in 1999, compared to an increase of $900 thousand or 23.8% from 1997 to 1998. The primary component of non-interest income is Financial Management Services revenue, which increased $270 thousand or 11.9%, from $2.3 million in 1998 to $2.5 million in 1999, compared to an increase of $266 thousand or 13.3% from 1997 to 1998. These revenues are largely based upon the market value of assets under management. The market value of Financial Management Services assets under management increased $24.4 million or 6.0%, from $405.2 million at the end of 1998 to $429.6 million at the end of 1999, and increased $57.1 million or 16.4% from 1997 to 1998. The 1999 and 1998 increases in market value of assets under management are attributable to new business development in the areas of trust, investment and pension management and market value appreciation. Service charges on deposit accounts decreased $45 thousand or 4.3% from $1.0 million in 1998 to $992 thousand in 1999 compared to an increase of $50 thousand or 5.1% from 1997 to 1998. This decrease in 1999, can be attributed to a more competitive pricing structure for our deposit accounts. During 1999, the Corporation realized securities gains of approximately $207 thousand compared to $87 thousand in 1998. These gains relate to the sale of certain equity securities that were sold in the second quarter of 1999. Other non-interest income decreased $24 thousand or 1.9% to $1.273 million in 1999 from $1.297. This decrease can be attributed to the sale of less residential mortgages to the secondary market in 1999 than 1998 resulting in fewer gains being recorded. Other non-interest income increased 59% to $1.3 million in 1998 from $815 thousand in 1997. The increase can be attributed to income from service charges for non-customer ATM transactions, which commenced during the second quarter of 1998. Income from the sale of residential mortgages to the secondary market during the first and second quarters of 1998 also contributed to the increase. NON-INTEREST EXPENSE Total non-interest expense increased $1.2 million or 7.5%, from $16.3 million in 1998 to $17.5 million in 1999, compared to an increase of $1.4 million or 9.2% from 1997 to 1998. The growth in non-interest expense reflects the increased costs incurred to service the Corporation's expanding customer base. The components of non-interest expense changes are discussed below. Salary and employee benefits increased $648 thousand or 7.2%, from $9.1 million in 1998 to $9.7 million in 1999. The increase in 1999 was a result of an average 4.0% salary increase for annual salary increases and a 2.5% increase in staff. As the Corporation expands and the cost of providing benefits increases, especially health insurance, it is anticipated that this component of non-interest expense will continue to rise. Salary and employee benefits increased $685 thousand or 8.2% from 1997 to 1998, primarily as a result of an FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS average 4.0% in salary increases and 3.1% increase in staff, partially offset by decreases in pension costs. The Corporation's full-time equivalent employees were 205, 200, and 194 at the end of 1999, 1998, and 1997, respectively. Net occupancy, equipment and data processing expense increased $487 thousand or 14.8%, from $3.3 million in 1998 to $3.8 million in 1999. The increases are a direct result of increased capital and related equipment costs associated with completion of the conversion of the Bank's core computer system, the phase out of certain maintenance related costs, a payroll system conversion, and direct Y2K expenses. Increases in the Corporations facilities and branch offices also contributed to the increase. As the Corporation expands its presence in the County as well as the products and services it offers this cost will continue to rise. Occupancy, equipment and data processing expense increased $334 thousand or 11.3% from 1997 to 1998. The increase in 1998 from 1997 was primarily a result of building renovations on the mortgage center and Financial Management Services building. See section titled "Building Improvements and Technology Projects" for additional information. Other non-interest expense increased $93 thousand or 2.4% from $3.9 million in 1998 to $4.0 million in 1999. This increase is the result of the Corporation's expanded marketing efforts to attract new borrowers and depositors as well as promotion of the new branch sites. Additional operating expenses associated with the increases in staff and premises also contributed to the increase. Additional components of non-interest expense are the FDIC's Bank Insurance Fund ("BIF") assessments and Pennsylvania Bank Shares Tax. The BIF insurance assessment was $0 for 1999, 1998, and 1997. On January 1, 1997, in accordance with the Deposit Insurance Act of 1996 an additional assessment by the Financing Corporation ("FICO") became applicable to all insured institutions. This assessment is not tied to the FDIC risk classification. The BIF FICO assessment is 1.296 basis points per $100 in deposits for 1999. The Bank's assessment for the BIF FICO in 1999 was $48 thousand. Bank Shares Tax was 0.60%, 0.68%, and 0.84% of average stockholders' equity for 1999, 1998, and 1997, respectively. In 1998 and 1997 bank shares tax expense benefited from credits related to community development projects which were not available in 1999. The Pennsylvania Bank Shares Tax is based primarily on Bank Stockholders equity and paid annually. Preliminary plans for the opening of additional branch sites continue to be pursued. The Corporation believes that the costs associated with achieving these objectives will have a direct impact on all the above components of non-interest expense. It is anticipated that increased costs and expenses will be offset over time by increases in net interest and fee income generated by business in new marketing areas. INCOME TAXES Income tax expense was $2.05 million in 1999 compared to $2.10 million in 1998 and $1.9 million in 1997, representing an effective tax rate of 28.2%, 29.5%, and 29.0%, respectively. Tax rates in 1999 and 1998 were affected by tax credits resulting from investments in a community development project. The Bank is actively pursuing additional community development projects for investments. These investments will result in additional tax credits which should further decrease the Corporation's effective rate. The primary reason for the increase in the effective tax rates from 1997 to 1998 was a decrease in tax exempt assets as a percentage of total average assets and a smaller amount of tax credits. Average tax-exempt assets as a percentage of total average assets were 1.8%, 1.8% and 2.6% in 1999, 1998 and 1997, respectively. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED AVERAGE BALANCE SHEET AND TAX EQUIVALENT INCOME/EXPENSES AND RATES FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997 ------------------------- ------------------------- --------------------- (Dollars in thousands) Daily Daily Daily Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- ------- -------- ---- ASSETS Federal funds sold $ 2,398 $ 114 4.75% $ 8,022 $ 436 5.44% $ 5,544 $ 308 5.56% Interest bearing deposits in Banks -- -- -- -- -- -- 197 12 6.09 Investment securities Taxable 114,175 7,102 6.22 82,434 4,938 5.99 78,672 5,104 6.49 Tax-exempt (1) 2,165 160 7.39 1,548 119 7.69 2,114 157 7.43 -------- ------ -------- ------ ------- ------ Total investment securities 116,340 7,262 6.24 83,982 5,057 6.02 80,786 5,261 6.51 -------- ------ -------- ------ ------- ------ Loans (2) Taxable 326,021 27,337 8.39 313,893 27,849 8.87 291,114 26,012 8.94 Tax-exempt (1) 5,945 571 9.61 6,473 649 10.03 8,623 823 9.54 -------- ------ -------- ------ ------- ------ Total loans 331,966 27,908 8.41 320,366 28,498 8.90 299,737 26,835 8.95 -------- ------ -------- ------ ------- ------ Total interest-earning assets 450,704 35,284 7.83 412,370 33,991 8.24 386,264 32,416 8.39 ------ ------ ------ Non-interest-earning assets Allowance for possible loan losses (5,998) (5,900) (5,607) Cash and due from banks 22,681 20,121 18,853 Other assets 17,081 14,772 13,218 ------- -------- ------- Total assets $484,468 $ 441,363 $412,728 ======= ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Savings, NOW, and money market deposits $204,986 $ 6,021 2.94% $ 184,081 $ 5,713 3.10% $173,753 $ 5,436 3.13% Certificates of deposit and other time 147,091 7,854 5.34 137,825 7,966 5.78 125,436 7,234 5.77 -------- ------ -------- ------ ------- ------ Total interest-bearing deposits 352,077 13,875 3.94 321,906 13,679 4.25 299,189 12,670 4.23 Securities sold under repurchase agreements 2,741 110 4.01 3,019 116 3.84 8,560 280 3.28 Other borrowings 9,284 558 6.01 5,269 340 6.45 6,508 401 6.16 -------- ------ -------- ------ ------- ------ Total interest-bearing liabilities 364,102 14,543 3.99 330,194 14,135 4.28 314,257 13,351 4.25 ------ ------ ------ Non-interest-bearing liabilities Non-interest-bearing demand deposits 72,493 64,705 57,659 Other liabilities 6,028 8,268 6,264 -------- -------- -------- Total liabilities 442,623 403,167 378,180 Stockholders' equity 41,845 38,196 34,548 -------- -------- -------- Total liabilities and stockholders' equity $ 484,468 $ 441,363 $412,728 ======== ======== ======= Net interest income $20,741 $ 19,856 $ 19,065 ====== ======= ======= Net yield on interest-earning assets 4.60% 4.82% 4.94% ==== ==== ==== (1) The indicated income and annual rate are presented on a tax equivalent basis using the federal marginal rate of 34%, adjusted for the TEFRA 20% interest expense disallowance for 1999, 1998, and 1997. (2) Nonaccruing loans are included in the average balance.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY MANAGEMENT AND INTEREST RATE SENSITIVITY The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for business expansion. Liquidity management addresses the Corporation's ability to meet deposit withdrawals either on demand or at contractual maturity, to repay borrowings as they mature, and to make new loans and investments as opportunities arise. Liquidity is managed on a daily basis enabling Senior Management to effectively monitor changes in liquidity and to react accordingly to fluctuations in market conditions. The primary source of liquidity for the Corporation is its available-for-sale portfolio of liquid investment grade securities. Funding sources also include NOW, money market, savings, and small denomination certificates (< $100,000) of deposit accounts. The Corporation considers funds from such sources as its "core" deposit base because of the historical stability of such sources of funds. Additional liquidity comes from the Corporation's non-interest-bearing demand deposit accounts, a three-tiered savings product and certificates of deposit in excess of $100,000. Details of core deposits, non-interest-bearing demand deposit accounts and other deposit sources are highlighted in the following table: DEPOSIT ANALYSIS
(Dollars in thousands) 1999 1998 1997 ----------------------- ---------------------- ----------------------- Average Effective Average Effective Average Effective DEPOSIT TYPE Balance Yield Balance Yield Balance Yield ------------ -------- --------- ------- --------- ---------- -------- NOW $ 58,356 1.71% $ 55,203 2.04% $ 52,758 2.19% Money Market 27,139 2.90 27,596 3.09 28,433 3.15 Statement Savings 49,144 3.00 47,046 3.28 48,381 3.31 Other Savings 2,280 2.76 2,382 2.73 2,996 2.74 CD's Less than $100,000 118,228 5.38 114,372 5.81 108,022 5.80 ------- ------- ------- Total Core Deposits 255,147 3.79 246,599 4.15 240,590 4.16 Non-interest-Bearing Demand Deposits 72,493 -- 64,705 -- 57,659 -- -------- -------- ------- Subtotal 327,640 -- 311,304 -- 298,249 -- Tiered Savings 68,067 3.97 51,854 4.09 41,184 4.14 CD's Greater than $100,000 28,863 5.19 23,453 5.63 17,415 5.54 -------- -------- ------- Total Deposits $ 424,570 -- $ 386,611 -- $ 356,848 -- ======== ======== ========
The Bank as a member of the Federal Home Loan Bank ("FHLB") maintains a credit facility secured by the Bank's-mortgage related assets. Additionally, the FHLB offers several other credit related products which are available to the Bank. The Corporation utilizes borrowings from the FHLB and collateralized repurchase agreements in managing its interest rate risk and as a tool to augment deposits and in funding asset growth. The Corporation may utilize these funding sources to better match its longer term repricing assets (i.e., between one and five years). FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The goal of interest rate sensitivity management is to avoid fluctuating net interest margins, and to enhance consistent growth of net interest income through periods of changing interest rates. Such sensitivity is measured as the difference in the volume of assets and liabilities in the existing portfolio that are subject to repricing in a future time period. The Corporation's net interest rate sensitivity of its "gap position" within one year is ($277,341) million or 44.4% of total assets at December 31, 1999, compared with ($151,780) million or 32.2% of total assets at the end of 1998. This negative position indicates that more liabilities than assets my reprice within the next twelve months, which in a rising rate environment may result in an increase in interest expense that would not be offset by repricing assets. The data in this analysis is static and represents the gap position at a specific point in time and may not be inductive of actual results. INTEREST RATE SENSITIVITY GAP AS OF DECEMBER 31, 1999 (Dollars in thousands) One Over Within Through Five Non-Rate One Year Five Years Years Sensitive Total ------------ ---------- ---------- ---------- -------------- ASSETS Federal funds sold $ 5,000 $ - $ - $ - $ 5,000 Investment securities 22,314 58,165 32,561 - 113,040 Loans and leases 85,620 198,094 70,626 (6,261) 348,079 Cash and cash equivalents - - - 27,257 27,257 Premises & equipment - - 34 10,410 10,444 Other assets 3,976 - - 4,106 8,082 -------- -------- --------- -------- -------- Total assets $ 116,910 $ 256,259 $ 103,221 $ 35,512 $ 511,902 ======== ======== ========= ======== ======== LIABILITIES AND CAPITAL Non-interest-bearing deposits$ - $ - $ - $ 82,734 $ 82,734 Interest bearing deposits 330,478 33,303 1,918 - 365,699 Securities sold under repurchase agreements 3,365 - - - 3,365 FHLB Advances 10,408 1,569 4,690 - 16,667 Other liabilities - - 5,255 - 5,255 Capital - - - 38,182 38,182 -------- -------- --------- -------- -------- Total liabilities and capital $ 344,251 $ 34,872 $ 11,863 $ 120,916 $ 511,902 ======== ======== ========= ======== ======== Net interest rate sensitivity gap $(227,341) $ 221,387 $ 91,358 $ (85,404) $ - ======== ======== ========= ========= ======== Cumulative interest rate sensitivity gap $(227,341) $ (5,954) $ 85,404 $ - $ - ======== ======== ========= ========= ======== Cumulative interest rate sensitivity gap divided by total assets (44.4)% (1.2)% 16.7%
The Corporation's gap position is one factor used to evaluate interest rate risk and the stability of net interest margins. Other factors include computer simulations of what might happen to net interest income under various interest rate forecasts and scenarios. The Corporation's Asset Liability FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management Policy requires quarterly calculation of the effects of changes in interest rates on net interest income. These calculations are prepared quarterly using computer based asset liability software. The table below summarizes estimated changes in net interest income over a twelve-month period, under alternative interest rate scenarios. The change in interest rates was based on an immediate and proportional shift in the December 31, 1999 Wall Street Journal prime rate of 8.50%.
(Dollars in thousands) Change in Net Dollar Percent Management Interest Rates Interest Income Change Change Limits -------------- --------------- ------ ------ ------ +300 Basis Points $27,369 $-885 -3.13% 4.50% +200 Basis Points 27,666 -588 -2.08 4.00 +100 Basis Points 27,961 -293 -1.04 3.00 FLAT RATE 28,254 0 0 0.00 -100 Basis Points 28,910 656 2.32 3.00 -200 Basis Points 28,834 580 2.05 4.00 -300 Basis Points 29,120 866 3.07 4.50
Management believes that the assumptions utilized in evaluating the vulnerability of the Corporation's net interest income to changes in interest rates approximate actual experience; however, the interest rate sensitivity of the Corporation's assets and liabilities as well as the estimated effect of changes in interest rates on net interest income could vary substantially if different assumptions are used or actual experience differs from the experience on which the assumptions were based. For example, certain assets, such as adjustable rate loans, have features which restrict changes in interest rates on a short term basis or over the life of the assets. In the event the Corporation should experience a mismatch in its desired gap position or an excessive decline in its net interest income subsequent to an immediate and sustained change in interest rates, it has a number of options which it could utilize to remedy such a mismatch. The Corporation could restructure its investment portfolio through sale or purchase of securities with more favorable repricing attributes. It could also promote loan products with appropriate maturities or repricing attributes. The Corporation could also solicit deposits or search for borrowings with more desirable maturities. However, market circumstances might make execution of these strategies cost prohibitive or unattainable. The nature of the Corporation's current operation is such that it is not subject to foreign currency exchange or commodity price risk. Additionally, neither the Corporation nor the Bank own trading assets. At December 31, 1999, the Corporation did not have any hedging transactions in place such as interest rate swaps, caps or floors. ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is an amount that management believes will be adequate to absorb loan losses on existing loans that may become uncollectible based on evaluations of the collectibility of loans. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, adequacy of collateral, review of specific problem loans, and current economic conditions that may affect the borrower's ability to pay. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ANALYSIS OF CHANGES IN THE ALLOWANCE FOR POSSIBLE LOAN LOSSES AND COMPARISON OF LOANS OUTSTANDING
December 31 ---------------------------------------------------------------- (Dollars in thousands) 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Balance at beginning of year $ 5,877 $ 5,900 $ 5,218 $ 4,506 $ 3,303 --------- --------- --------- --------- --------- Provision charged to operating expense 799 911 1,135 1,079 1,666 --------- --------- --------- --------- --------- Recoveries of loans previously charged off Commercial loans 81 48 67 36 4 Real estate - mortgages - 145 - - 46 Consumer loans 97 52 16 8 29 --------- --------- --------- --------- --------- Total recoveries 178 245 83 44 79 --------- --------- --------- --------- --------- Loan charge-offs Commercial loans (38) (247) (237) (118) (348) Real estate - mortgages (67) (45) (117) (218) (25) Consumer loans (488) (887) (182) (62) (108) Lease financing receivables - - - (13) (61) --------- --------- --------- --------- --------- Total charge-offs (593) (1,179) (536) (411) (542) --------- --------- --------- --------- --------- Net loan charge-offs (415) (934) (453) (367) (463) --------- --------- --------- --------- --------- Balance at end of year $ 6,261 $ 5,877 $ 5,900 $ 5,218 $ 4,506 ========= ========== ========= ========= ========= Year-end loans outstanding $ 354,338 $ 320,395 $ 318,899 $ 264,582 $ 242,587 Average loans outstanding $ 331,966 $ 320,366 $ 299,737 $ 249,697 $ 243,657 Allowance for possible loan losses as a percentage of year-end loans outstanding 1.77% 1.83% 1.85% 1.97% 1.86% Ratio of net charge-offs to average loans outstanding 0.13% 0.29% 0.15% 0.15% 0.19%
Non-performing loans include loans on non-accrual status and loans past due 90 days or more and still accruing. The Bank's policy is to write down all non-performing loans to net realizable value based on updated appraisals of collateral. Non-performing loans are generally collateralized by real estate and are in the process of collection. Management believes that loans that are past due over 90 days and still accruing are adequately collateralized as to principal and interest. Such loans are in the process of collection. The allowance for loan losses as a percentage of non-performing loans ratio indicates that the allowance for loan losses is sufficient to cover the FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS principal of all non-performing loans at December 31, 1999. Other real estate owned ("OREO") represents residential and commercial real estate owned by the Bank following default by borrowers by and what has been written down to realizable value (net of estimated disposal costs) based on professional appraisals. In October 1999, the Corporation liquidated from OREO a commercial property for a net amount of $192 thousand resulting in a recovery of certain legal and tax expenses and a gain of approximately $13 thousand. In October, the Bank took another property into OREO in the amount of $470 thousand. Management is not aware of any loans other than those included in these tables and mentioned in this paragraph that would be considered potential problem loans and cause Management to have doubts as to the borrower's ability to comply with loan repayment terms. The Corporation decided to withdraw from third party automobile lending on July 10, 1998 due to less than expected results. The Corporation continues to service the existing portfolio but has not added any additional volume. The portfolio totaled approximately $14 million and $24 million as of December 31, 1999 and December 31, 1998, respectively. Approximately 4.19% and 9.92% was past due 30 days or more as of December 31, 1999 and December 31, 1998. NON-PERFORMING LOANS AND ASSETS
December 31 ---------------------------------------------------------------- (Dollars in thousands) 1999 1998 1997 1996 1995 -------- -------- -------- -------- ---------- Past due over 90 days and still accruing $ 175 $ 546 $ 466 $ 2,772 $ 419 Non-accrual loans 1,207 1,316 1,443 713 726 -------- -------- -------- -------- -------- Total non-performing loans 1,382 1,862 1,909 3,485 1,145 Other real estate owned ("OREO") 470 192 1,651 1,274 1,447 --------- --------- -------- -------- -------- Total non-performing assets $ 1,852 $ 2,054 $ 3,560 $ 4,759 $ 2,592 ======== ======== ======== ======== ======== Non-performing loans as a percentage of total loans 0.39% 0.58% 0.60% 1.32% 0.47% Allowance for loan losses as a percentage of non-performing loans 453.0% 315.6% 309.1% 149.7% 393.5% Non-performing assets as a percentage of total loans and other real estate owned 0.5% 0.6% 1.1% 1.8% 1.1% Allowance for loan losses as a percentage of nonperforming assets 338.1% 286.1% 165.7% 109.6% 173.8%
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL ADEQUACY The Corporation is subject to Risk-Based Capital Guidelines adopted by the Federal Reserve Board for bank holding companies. The Bank is also subject to similar capital requirements adopted by the Office of the Comptroller of the Currency ("OCC"). Under these requirements, the regulatory agencies have set minimum thresholds for Tier I Capital, Total Capital, and Leverage ratios. At December 31, 1999, both the Corporation's and the Bank's capital exceeded all minimum regulatory requirements and were considered "well capitalized" as defined in the regulations issued pursuant to the FDIC Improvement Act of 1994. The Corporation's and Banks Risk-Based Capital Ratios, shown below, have been computed in accordance with regulatory accounting policies.
December 31 RISK-BASED -------------------------------------- "Well Capitalized" CAPITAL RATIOS 1999 1998 1997 Requirements - -------------- ------------ ------------ ----------- ---------------- Corporation Leverage Ratio 8.48% 8.59% 8.57% N/A Tier I Capital Ratio 10.73% 11.67% 11.22% N/A Total Risk-Based Capital Ratio 11.98% 12.95% 12.48% N/A Bank Leverage Ratio 8.05% 8.36% 8.30% 5.00% Tier I Capital Ratio 10.47% 11.35% 10.89% 6.00% Total Risk-Based Capital Ratio 11.73% 12.62% 12.14% 10.00%
The Bank is not under any agreement with the regulatory authorities nor is it aware of any current recommendations by the regulatory authorities that, if they were to be implemented, would have a material effect on liquidity, capital resources or operations of the Corporation. BUILDING IMPROVEMENTS AND TECHNOLOGY PROJECTS The Corporation acquired and opened limited access branch banking facilities in four local retirement communities in December of 1999. The locations include Granite Farms Estates, Lima Estates, and Kendal and Crosslands Communities. These branch locations will serve the residents and employees of their communities and bring the total number of branches in the Corporations network to twelve. In September of 1998, the Corporation purchased a 25,000 square foot office building adjacent to the Corporation's existing Operation Center in West Chester, Pennsylvania for approximately $1.7 million. The new building at 887 Matlack Street was put in service in the second quarter of 1999. It houses a branch teller training center that is open to the public as well as the new location for the administrative services, audit, compliance and facilities departments. During the third quarter of 1999, the Corporation purchased additional land in the Lionville area to accommodate future expansion. In November 1998, the Corporation completed a conversion of its core processing system to the Jack Henry and Associates, Inc. ("JHA") Silverlake system. JHA is a major provider of community bank core processing systems. Technology projects in process at December 31, 1999 include a conversion of our existing branch teller system to Jack Henry's Vertex system. On October 1, 1999, the Corporation launched our consumer Internet banking services, "Net Teller" and "BillPay". These new products allow our retail customers the convenience to access their accounts and pay bills on-line twenty-four hours a day from home. A commercial version of this product is expected in early 2000. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR 2000 ISSUES Results of the Century Date Change The Corporation as with the financial industry as a whole, has experienced no significant problems or irregularities with regard to the Y2K issue. However, there can be no assurance that the Corporation, its suppliers and customers, or the financial industry, will not experience any problems in the future. If any problems were to occur in the future, the Corporation intends to react according to its contingency plan. State of Readiness The Corporation adopted a Year 2000 ("Y2K") policy to address the inability of certain information systems and automated equipment to properly recognize and process dates containing the Y2K and beyond, (the "Y2K Issue"). If not corrected, these systems and automated equipment could produce inaccurate or unpredictable results commencing on January 1, 2000 and on various dates through 2000. The Corporation, similar to most financial services providers, is particularly vulnerable to the potential impact of the Y2K Issue due to the nature of financial information. Potential impacts to the Corporation may arise from software, computer hardware, and other equipment failure both within the Corporation's direct control and outside of the Corporation's ownership yet with which the Corporation electronically or operationally interfaces. The Corporation has no internally generated software coding to correct. Substantially all of the software utilized by the Corporation is purchased or licensed from external providers. In order to address the Y2K Issue, the Corporation has developed and implemented a five phase compliance plan. The compliance plan is divided into the following major components: (1) Awareness; (2) Assessment; (3) Renovation; (4) Validation and Testing; and (5) Implementation. The Corporation completed all five phases of the plan for all of its mission-critical systems on October 15, 1999. JHA has tested the unmodified version of its Silverlake system and the Federal Financial Institutions Examination Council ("FFIEC") has reviewed JHA test procedures and has provided the Corporation with a copy of the results. The Corporation conducted an independent test on the Silverlake system and related hardware during the week of March 7, 1999. The Corporation has documented and evaluated the results of that test and is satisfied with the results. The Corporation's check processing and imaging systems, operate on a combination of NCR, Unisys, Novell and Microsoft hardware and software. Parts of this system required certain upgrades. These upgrades were installed and tested prior to October 15, 1999. The Corporation is satisfied with the results of these tests. The Corporation has completed Y2K testing on all PC hardware and software. Any machines failing these tests were replaced or repaired. The Corporation's Financial Management Services Department outsources its core processing to Sunguard Trust System Inc.'s ("STS") Charlotte. STS is a provider of data processing services to the financial services industry. STS has informed the Corporation that, based upon tests, which it has conducted and is currently conducting, it believed its systems were Y2K compliant. The Corporation relied on testing conducted by STS and also relied on Proxy Tests conducted by certain STS customers. Testing and related documentation was completed by March 31, 1999. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Costs to Address the Corporation's Year 2000 Issues The Corporation incurred direct Y2K project costs of $203 thousand. The Corporation has incurred total direct and indirect Y2K project costs of $337 thousand. This estimated project cost is based upon currently available information and includes expenses for the review and testing by third parties, including government entities. However, there can be no guarantee that the hardware, software, and systems of such third parties will be free of unfavorable Y2K issues and therefore not present a material adverse impact upon the Corporation. The aforementioned Y2K project cost estimate also may change as the Corporation progresses in its Y2K program and obtains additional information associated with, and conducts further testing concerning, third parties. At this time, no significant projects have been delayed as a result of the Corporation's Y2K effort. Risk Assessment In assessing the Corporation's Y2K exposure the Corporation identified those suppliers and customers whose lack of Y2K preparedness might expose the Corporation to financial loss. Financial loss includes but is not limited to the following: (1) monies paid to suppliers for which no performance is rendered; (2) inability of suppliers to furnish necessary items potentially resulting in costly business interruptions; and (3) inability of loan customers to repay amounts due. The Corporation initiated formal communications with all of its significant vendors and large loan customers (over $250,000) to determine its vulnerability as a result of the failure of those third parties to remediate their own Y2K Issues. The Corporation completed its review of the Y2K capabilities of its significant vendors in the second quarter of 1999. Cash Contingency and Customer Awareness Programs The Corporation has a cash contingency plan to meet anticipated year-end customer needs. The Corporation is also participated in several customer / community awareness seminars. These seminars were designed to educate our customers and the community about Y2K risk and the steps the Corporation was taking to prepare itself. The Corporation has an ongoing employee awareness program with similar objectives. As part of the Corporation's cash contingency plan the Bank secured several sources of funds in the event they were needed in the fourth quarter of 1999 or the first quarter of 2000. Sources include: Unsecured credit lines at our correspondent banks, a guaranteed line of credit from the Federal Home Loan Bank and availability under the "Special Y2K Liquidity Facility" provided by the Federal Reserve. The Corporation's Contingency Plan The Corporation has several back-up system contingency plans, which was designed to render the Corporation operational for a period of one to thirty days should a Y2K problem surface. These contingency plans utilize secondary computer systems and / or various manual tasks, which include but are not limited to the following: 1. Maintenance of loan data on Microsoft Excel spreadsheets or paper ledgers; 2. Maintenance of core deposit account information on Microsoft Excel spreadsheets or paper ledgers; 3. Manual sorting of deposit tickets and checks by account number; and 4. Maintenance of FMS account information on Microsoft Excel spreadsheets or manual ledgers; 5. A check processing contingency plan involving the use of a used reader-sorter and JHA's proof of deposit program has been developed, fine tuned and tested. Other FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other Financial institution regulators have intensively focused upon Y2K exposures, issuing guidance concerning the responsibilities of senior management and directors in addressing the Y2K Issue. Y2K testing and certification was addressed as a key safety and soundness issue in conjunction with regulatory exams. In May 1997, the FFIEC issued an interagency statement to the chief executive officers of all federally supervised financial institutions regarding Y2K project management awareness. The FFIEC has highly prioritized Y2K compliance in order to avoid major disruptions to the operations of financial institutions and the country's financial systems when the new century begins. The FFIEC statement provides guidance to financial institutions, providers of data services, and all examining personnel of the federal banking agencies regarding the Y2K Issue. The federal banking agencies, including the OCC have been conducting Y2K compliance examinations. The failure to implement an adequate Y2K program can be identified as an unsafe and unsound banking practice. The Corporation and the Bank are subject to regulation and supervision by the OCC which regularly conducts reviews of the safety and soundness of the Corporation's operations, including the Corporation's progress in becoming Y2K compliant. The OCC has established an examination procedure which contains three categories of ratings: "Satisfactory", "Needs Improvement", and "Unsatisfactory". Institutions that receive a Y2K rating of "Unsatisfactory" may be subject to formal enforcement action, supervisory agreements, cease and desist orders, civil money penalties, or the appointment of a conservator. In addition, federal banking agencies will be taking into account Y2K compliance programs when reviewing applications and may deny an application based on Y2K related issues. Failure by the Corporation to adequately prepare for Y2K issues could negatively impact the Corporation's banking operations, including the imposition of restrictions upon its operations by the OCC. Despite the Corporation's activities in regards to the Y2K Issue and the results to date, there can be no assurance that partial or total systems interruptions may not yet occur which would have a material adverse effect upon the Corporation's business, financial condition, results of operations, and business prospects. DESCRIPTION OF CAPITAL STOCK AND MARKET INFORMATION The authorized capital stock of the Corporation consists of 10,000,000 shares of common stock, par value $1.00 per share, of which 4,799,666 shares were outstanding at the end of 1999 and 1998. The Corporation's common stock is publicly traded over the counter under the symbol "FWCC". Trading is sporadic. The following table, which shows the range of high and low month-end bid prices for the stock, is based upon transactions reported by the Philadelphia brokerage firm of Janney Montgomery Scott, LLC, one of the Corporation's market makers. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Bid Prices (1) ---------- Month End --------- 1999 1998 ---- ---- Quarter Ended High Low High Low ------------- ---- --- ---- --- First $21.00 $18.75 $20.25 $16.75 Second $20.50 $17.00 $20.25 $20.25 Third $17.75 $14.50 $20.00 $17.00 Fourth $20.50 $14.50 $19.00 $18.00 (1) All per share data has been retroactively adjusted for stock splits and stock dividends.
Other information regarding the Corporation can be found in the Corporation's Form 10-K, to be filed with the Securities and Exchange Commission by March 30, 1999. Copies of the form 10-K can be obtained from the Corporation's Shareholder Relations Officer, P.O. Box 523, West Chester, PA 19381-0523, at 610-344-2686. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) December 31 ---------------------------- 1999 1998 ---------- ---------- ASSETS Cash and due from banks $ 27,257 $ 25,006 Federal funds sold 5,000 5,675 --------- --------- Total cash and cash equivalents 32,257 30,681 --------- --------- Investment securities held-to-maturity (fair value of $4,535 and $7,606 in 1999 and 1998, respectively) 4,402 7,406 Investment securities available-for-sale, at fair value 108,638 102,380 Loans 354,338 320,395 Less allowance for possible loan losses (6,261) (5,877) --------- --------- Net loans 348,077 314,518 Premises and equipment, net 10,444 9,579 Other assets 8,084 6,129 --------- --------- Total assets $ 511,902 $ 470,693 ========= ========= LIABILITIES Deposits Non-interest-bearing $ 82,734 $ 72,556 Interest-bearing (including certificates of deposit over $100 of $28,377 and $28,984 - 1999 and 1998, respectively) 365,699 345,842 --------- --------- Total deposits 448,433 418,398 Securities sold under repurchase agreements 3,365 2,795 Federal Home Loan Bank advances 16,667 5,027 Other liabilities 5,255 4,750 --------- --------- Total liabilities 473,720 430,970 --------- --------- STOCKHOLDERS' EQUITY Common stock, par value $1.00; authorized, 10,000,000 shares; Outstanding, 1999 - 4,799,666 and 1998 - 4,799,666. 4,800 4,800 Additional paid-in capital 602 542 Retained earnings 38,652 35,675 Accumulated Other Comprehensive Income (2,893) 292 Treasury stock, at cost: 1999 - 254,509 and 1998 - 183,640. (2,979) (1,586) --------- --------- Total stockholders' equity 38,182 39,723 --------- --------- Total liabilities and stockholders' equity $ 511,902 $ 470,693 ========= ========= The accompanying notes are an integral part of these statements.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share) December 31 ------------------------------------- 1999 1998 1997 ------------ ------------ -------- INTEREST INCOME Loans, including fees $ 27,730 $ 28,296 $ 26,580 Investment securities 7,260 5,021 5,214 Federal funds sold 114 436 308 Deposits in banks 3 - 12 -------- -------- -------- Total interest income 35,107 33,753 32,114 -------- -------- -------- INTEREST EXPENSE Deposits 13,875 13,679 12,670 Securities sold under repurchase agreements 110 116 280 Other borrowings 558 340 401 -------- -------- -------- Total interest expense 14,543 14,135 13,351 -------- -------- -------- Net interest income 20,564 19,618 18,763 PROVISION FOR POSSIBLE LOAN LOSSES 799 911 1,135 -------- -------- -------- Net interest income after provision for possible loan losses 19,765 18,707 17,628 -------- -------- -------- NON-INTEREST INCOME Financial Management Services 2,536 2,266 2,000 Service charges on deposit accounts 992 1,037 987 Investment securities gains (losses), net 207 87 (15) Other 1,273 1,297 815 -------- -------- -------- Total non-interest income 5,008 4,687 3,787 -------- -------- -------- NON-INTEREST EXPENSE Salaries and employee benefits 9,694 9,046 8,361 Occupancy, equipment, and data processing 3,785 3,298 2,964 Other 4,027 3,934 3,586 -------- -------- -------- Total non-interest expense 17,506 16,278 14,911 -------- -------- -------- Income before income taxes 7,267 7,116 6,504 INCOME TAXES 2,050 2,100 1,889 -------- -------- -------- NET INCOME $ 5,217 $ 5,016 $ 4,615 ======== ======== ======== PER SHARE Basic Earnings Per Common Share $ 1.14 $ 1.09 $ 1.00 ======== ======== ======== Diluted Earnings Per Common Share $ 1.13 $ 1.07 $ 1.00 ======== ======== ======== Dividends declared $ 0.49 $ 0.47 $ 0.43 ======== ======== ======== The accompanying notes are an integral part of these statements.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Accumulated Additional Other Total Common Stock Paid-in Retained Comprehensive Treasury Stockholders' Comprehensive (Dollars in thousands) Shares Par Value Capital Earnings Income Stock Equity Income ------ --------- ---------- -------- ------------- -------- ------------- ------------- Balance at January 1, 1997 1,799,941 $ 1,800 $ 3,305 $30,133 $ (242) $(1,821) $ 33,175 $ - Net income - - - 4,615 - - 4,615 4,615 Cash dividends declared - - - (1,945) - - (1,945) - Other Comprehensive Income Net unrealized gain on investment securities available-for-sale - - - - 209 - 209 209 4 for 3 stock split 599,892 600 (600) - - - - - Treasury stock transactions - - 24 - - 135 159 - --------- ------ ------ ------ ------ ------ ------- ------- Comprehensive Income - $ 4,824 ======= Balance at December 31, 1997 2,399,833 $ 2,400 $ 2,729 $32,803 $ (33) $(1,686) $ 36,213 $ - Net income - - - 5,016 - - 5,016 5,016 Cash dividends declared - - - (2,144) - - (2,144) - Other Comprehensive Income Net unrealized gain on investment securities available-for-sale - - - - 325 - 325 325 2 for 1 stock split 2,399,833 2,400 (2,400) - - - - - Treasury stock transactions - - 213 - - 100 313 - --------- ------ ------ ------ ------ ------ ------- ------- Comprehensive Income - $ 5,341 ======= Balance at December 31, 1998 4,799,666 $ 4,800 $ 542 $35,675 $ 292 $(1,586) $ 39,723 $ - Net income - - - 5,217 - - 5,217 5,217 Cash dividends declared - - - (2,240) - - (2,240) - Other Comprehensive Income Net unrealized gain (loss) on investment securities available-for-sale - - - - (3,185) - (3,185) (3,185) Treasury stock transactions - - 60 - - (1,393) (1,333) - --------- ------ ------ ------ ------ ------ ------- ------- Comprehensive Income - $ 2,032 ======= Balance at December 31, 1999 4,799,666 $ 4,800 $ 602 $38,652 $(2,893) $ (2,979) $ 38,182 ========= ======= ====== ====== ====== ======= ======= The accompanying notes are an integral part of these statements.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) December 31 --------------------------------------- 1999 1998 1997 ------------ ----------- ---------- OPERATING ACTIVITIES Net income $ 5,217 $ 5,016 $ 4,615 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 965 1,279 860 Provision for loan losses 799 911 1,135 Amortization of investment security premiums and accretion of discounts, net 335 275 52 Amortization of deferred fees, net on loans 137 (92) 53 Investment securities (gains) losses, net (207) (87) 15 (Increase) decrease in other assets (5,039) 1,703 (634) Increase (decrease) in other liabilities 505 (1,151) 601 -------- --------- --------- Net cash provided by operating activities 2,712 7,854 6,697 -------- --------- --------- INVESTING ACTIVITIES Decrease in interest-bearing deposits with banks -- -- 1,000 Net decrease in loans (34,495) (2,338) (54,823) Proceeds from sales of investment securities available-for-sale 15,899 22,061 30,646 Proceeds from maturities of investment securities available-for-sale 28,889 29,790 13,588 Proceeds from maturities of investment securities held-to-maturity 4,216 4,719 3,635 Purchase of investment securities available-for-sale (52,386) (88,789) (27,543) Purchase of premises and equipment, net (1,930) (4,199) (767) -------- --------- --------- Net cash used in investing activities (39,807) (38,756) (34,264) -------- --------- --------- FINANCING ACTIVITIES (Increase) decrease in Federal Home Loan Bank advances and other borrowings 11,640 (2,353) (318) Increase in deposits 30,033 44,149 22,983 Increase (decrease) in securities sold under repurchase agreements 570 (4,830) 7,380 Cash dividends (2,239) (2,144) (1,945) Treasury stock transactions (1,333) 313 159 -------- --------- --------- Net cash provided by financing activities 38,671 35,135 28,259 -------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,576 4,233 692 Cash and cash equivalents at beginning of year 30,681 26,448 25,756 -------- --------- --------- Cash and cash equivalents at end of year $ 32,257 $ 30,681 $ 26,448 ======== ========= ========= The accompanying notes are an integral part of these statements.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES First West Chester Corporation (the "Corporation") which intends to change its name to the First Chester County Corporation, through its wholly-owned subsidiary, The First National Bank of West Chester (the "Bank") which intends to change its name to the First National Bank of Chester County, has been serving the residents and businesses of Chester County, Pennsylvania, since 1863. The Bank is a locally managed community bank providing loan, deposit, and trust services from its twelve branch locations. The Bank encounters vigorous competition for market share in the communities it serves from bank holding companies, other community banks, thrift institutions, credit unions and other non-bank financial organizations such as mutual fund companies, insurance companies, and brokerage companies. The Corporation and the Bank are subject to regulations of certain state and federal agencies. These regulatory agencies periodically examine the Corporation and the Bank for adherence to laws and regulations. As a consequence, the cost of doing business may be affected. 1. Basis of Financial Statement Presentation The accounting policies followed by the Corporation and its wholly-owned subsidiaries, the Bank and 323 East Gay Street Corp ("EGSC"), conform to generally accepted accounting principles and predominant practices within the banking industry. The accompanying consolidated financial statements include the accounts of the Corporation, the Bank, and EGSC. All significant intercompany transactions have been eliminated. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the balance sheets, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The principal estimate that is susceptible to significant change in the near term relates to the allowance for loan and lease losses. The evaluation of the adequacy of the allowance for loan losses includes an analysis of the individual loans and overall risk characteristics and size of the different loan portfolios, and takes into consideration current economic and market conditions, the capability of specific borrowers to pay specific loan obligations, as well as current loan collateral values. However, actual losses on specific loans, which also are encompassed in the analysis, may vary from estimated losses. On January 1, 1998, the Corporation adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". SFAS No. 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a Company's operating segments. Management has concluded that under current conditions, the Corporation will report one business segment. 2. Financial Instruments The Corporation follows Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments," which requires all entities to disclose the estimated fair value of their assets and liabilities considered to be financial instruments. Financial instruments requiring disclosure consist primarily of investment securities, loans, and deposits and borrowings. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued 3. Investment Securities The Corporation follows SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires investments in securities to be classified in one of three categories: held-to-maturity, trading, or available-for-sale. Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as held-to-maturity and are reported at amortized cost. As the Corporation does not engage in security trading, the balance of its debt securities and any equity securities are classified as available-for-sale. Net unrealized gains and losses for such securities, net of tax effect, are required to be recognized as a separate component of stockholders' equity and excluded from the determination of net income. 4. Loans and Allowance for Loan Losses Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, reduced by unearned discount and an allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loan principal considered to be uncollectible by management is charged against the allowance for loan losses. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible based upon an evaluation of known and inherent risks in the loan portfolio, the evaluation takes into consideration such factors as changes in the nature and size of the loan portfolio, overall portfolio quality, specific problem loans, and current and future economic conditions which may affect the borrowers' ability to pay. The evaluation also details historical losses by loan category, the resulting loss rates for which are projected at current loan total amounts. Low estimates for specified problem loans are also detailed. Interest on loans is accrued and credited to operations based upon the principal amount outstanding. Certain origination and commitment fees and related direct loan origination costs are deferred and amortized over the contractual life of the related loans, resulting in an adjustment of the related loan's yield. Accrual of interest is discontinued on a loan when management believes that the borrower's financial condition is such that collection of interest and principal is doubtful. Upon such discontinuance, all unpaid accrued interest is reversed. The determination of the allowance for loan losses is based upon the character of the loan portfolio, current economic conditions, loss experience, and other relevant factors, which, in management's judgment, deserve recognition in estimating possible losses. The Corporation accounts for impairment in accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 114 requires loan impairment to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, its observable market price or the fair value of the collateral if the loan is collateral dependent. If it is probable that a creditor will foreclose on a property, the creditor must measure impairment based on the fair value of the collateral. SFAS No. 118 allows creditors to use existing methods for recognizing interest income on impaired loans. 5. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Assets are depreciated over their estimated useful lives, principally by the straight-line method. The Corporation accounts for long-lived fixed assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement provides FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued guidance on when assets should be reviewed for impairment, how to determine whether an asset or group of assets is impaired, how to measure an impairment loss, and the accounting for long lived-lived assets that a company plans to dispose of. 6. Contributions The Corporation accounts for contributions in accordance with SFAS No. 116, "Accounting for Contributions Received and Contributions Made." SFAS No. 116 specifies that contributions made by the Corporation be recognized as expenses in the period made and as decreases of assets or increases of liabilities depending on the form of the benefits given. In accordance with SFAS No. 116, the Corporation incurred contribution expenses relating to long-term commitments to local not-for-profit organizations of $12,500, $63,000 and $83,000 during 1999, 1998 and 1997, respectively. 7. Income Taxes The Corporation accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes. Under the liability method specified by SFAS No. 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense and benefits are the result of changes in deferred tax assets and liabilities. 8. Employee Benefit Plans The Corporation has certain employee benefit plans covering eligible employees. The Bank accrues such costs as earned. 9. Stock Based Compensation Plan The Corporation follows SFAS No. 123, "Accounting for Stock-Based Compensation," which contains a fair value-based method for valuing stock-based compensation, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternately, the standard permits entities to continue accounting for employee stock options and similar instruments under Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees." Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair-value based method of accounting defined in SFAS No. 123 had been applied. The Corporation's stock option plan is accounted for under APB Opinion No. 25. 10. Financial Management Services Assets and Income Assets held by the Corporation in fiduciary or agency capacities for its customers are not included in the accompanying consolidated balance sheets since such items are not assets of the Corporation. Operating income and expenses of Financial Management Services are included under their respective captions in the accompanying consolidated statements of income and are recorded on the accrual basis. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued 11. Earnings per Share and Stockholders' Equity The Corporation adopted the provisions of SFAS No. 128, "Earnings Per Share," which eliminates primary and fully diluted earnings per share (EPS) and requires presentations of basic and diluted EPS in conjunction with the disclosure of the methodology used in computing such EPS. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. On September 22, 1998, the Board of Directors declared a stock split, in the form of a 100% stock dividend to stockholders of record on October 23, 1998, payable November 24, 1998. Par value remained at $1.00 per share. The stock split resulted in the issuance of 2,399,833 additional shares of common stock from authorized but unissued shares. The issuance of authorized but unissued shares resulted in the transfer of $2,399,833 from additional paid-in capital to common stock, representing the par value of the shares issued. Accordingly, earnings per share, cash dividends per share, and weighted average shares of common stock outstanding have been restated to reflect the stock split. 12. Cash Flow Information For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Cash paid during the years ended December 31, 1999, 1998, and 1997 for interest was $15,200,000, $14,100,000, and $12,600,000, respectively. Cash paid during the years ended December 31, 1999, 1998, and 1997 for income taxes was $2,298,000, $2,053,000, and $2,045,000, respectively. 13. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities The Corporation follows SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," as amended by SFAS No. 127, which provides accounting guidance on transfers of financial assets, servicing of financial assets, and extinguishments of liabilities. 14. Reporting Comprehensive Income On January 1, 1998, the Corporation adopted the provisions of SFAS No. 130, Reporting of Comprehensive Income, which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of financial statements. This statement also requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement.
December 31, 1999 ------------------------------------------------ (Dollars in thousands) Before Tax Net of Tax (Expense) Tax Amount Benefit Amount ------ ------- ------ Unrealized loss on securities Unrealized holding loss arising during the period $(4,474) $1,134 $(3,340) Reclassification adjustment for gains realized in net income 207 (52) 155 ------ ----- ------ Other comprehensive loss $(4,267) $1,082 $(3,185) ====== ===== ======
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
December 31, 1998 ------------------------------------------------ (Dollars in thousands) Before Tax Net of Tax (Expense) Tax Amount Benefit Amount ------ ------- ------ Unrealized gains on securities Unrealized holding gain arising during the period $ 349 $ 133 $ 260 Reclassification adjustment for gains realized in net income 87 (22) 65 -------- ------ -------- Other comprehensive income $ 436 $ (111) $ 325 ======== ====== ========
December 31, 1997 ------------------------------------------------ (Dollars in thousands) Before Tax Net of Tax (Expense) Tax Amount Benefit Amount ------ ------- ------ Unrealized gains on securities Unrealized holding gain arising during the period $ 295 $ (75) $ 228 Reclassification adjustment for losses realized in net income (15) 4 (19) -------- ------- -------- Other comprehensive income $ 280 $ (71) $ 209 ======== ======= ========
15. Disclosure about Derivative Instruments and Hedging Activities In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities was issued. Subsequent to this statement, SFAS No. 137 was issued, which amended the effective date of SFAS No. 133 to be all fiscal quarters of all fiscal years beginning after June 15, 2000. Based on the Corporation's minimal use of derivatives at the current time, management does not anticipate the adoption of SFAS No. 133 will have a significant impact on earnings or financial position of the Corporation. However, the impact from adopting SFAS No. 133 will depend on the nature and purpose of the derivative instruments in use by the Corporation at that time 16. Advertising Costs The Bank expenses advertising costs as incurred. 17. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - INVESTMENT SECURITIES The amortized cost, gross unrealized gains and losses, and fair market value of the Corporation's available-for-sale and held-to-maturity securities at December 31, 1999 and 1998 are summarized as follows:
Held-to-Maturity Available-for-Sale --------------------------------------- ---------------------------------------- (Dollars in thousands) Gross Gross Gross Gross 1999 Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair ---- Cost Gains Losses Value Cost Gains Losses Value --------- ---------- ---------- ----- --------- ---------- ---------- ----- U.S. Treasury $ - $ - $ - $ - $ 4,020 $ - $ (51) $ 3,969 U.S. Government agency - - - - 1,991 - (164) 1,827 Mortgage-backed securities 241 - (5) 236 77,001 - (2,911) 74,090 State and municipal 2,057 143 - 2,200 1,278 - (48) 1,230 Corporate securities 2,104 - (5) 2,099 11,457 - (788) 10,669 Corporate CMO's - - - - 4,864 - (138) 4,726 Asset-backed securities - - - - 6,996 - (122) 6,874 Mutual funds - - - - 1,091 - (76) 1,015 Other equity securities - - - - 4,323 27 (112) 4,238 ---------- -------- ------- ---------- --------- ------- ------- --------- $ 4,402 $ 143 $ (10) $ 4,535 $113,021 $ 27 $ (4,410) $108,638 ====== ===== ===== ====== ======= ==== ======= ======= Held-to-Maturity Available-for-Sale --------------------------------------- -------------------------------------- (Dollars in thousands) Gross Gross Gross Gross 1998 Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair ---- Cost Gains Losses Value Cost Gains Losses Value --------- ---------- ---------- ----- --------- ---------- ---------- ----- U.S. Treasury $ - $ - $ - $ - $ 4,996 $ 23 $ - $ 5,019 U.S. Government agency - - - - - - - - Mortgage-backed securities 859 1 - 860 77,405 144 (33) 77,516 State and municipal 2,907 162 - 3,069 500 - (3) 497 Corporate securities 3,110 34 - 3,144 6,272 - (10) 6,262 Asset-backed securities 530 3 - 533 8,637 123 - 8,760 Mutual funds - - - - 1,091 - (52) 1,039 Other equity securities - - - - 3,037 250 - 3,287 ------ ----- ----- ------ ------- ------ ----- ------- $ 7,406 $ 200 $ - $ 7,606 $101,938 $ 540 $ (98) $102,380 ====== ===== ===== ====== ======= ====== ===== =======
The amortized cost and estimated fair value of debt securities classified as available-for-sale and held-to-maturity at December 31, 1999, by contractual maturity, are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - INVESTMENT SECURITIES - continued
Held-to-Maturity Available-for-Sale -------------------------- ----------------------------- (Dollars in thousands) Amortized Fair Amortized Fair Cost Value Cost Value ---- ----- ---- ----- Due in one year or less $ 2,580 $ 2,582 $ 996 $ 989 Due after one year through five years 1,556 1,692 6,774 6,591 Due after five years through ten years 25 25 14,337 13,404 Due after ten years - - 1,503 1,436 -------- -------- -------- -------- 4,161 4,299 23,610 22,420 Mortgage-backed securities 241 236 77,001 74,091 Asset-backed securities - - 6,996 6,874 Other equity securities - - 5,414 5,253 -------- -------- -------- -------- $ 4,402 $ 4,535 $ 113,021 $ 108,638 ======== ======== ======== ========
Proceeds from the sale of investment securities available for sale during 1999 were $15.9 million. Gains of $231,000, $155,000, and $330,000, and losses of $24,000, $68,000, and $345,000 were realized on sales of securities in 1999, 1998, and 1997, respectively. The Corporation uses the specific identification method to determine the cost of the securities sold. The principal amount of investment securities pledged to secure public deposits and for other purposes required or permitted by law was $38,793,000 and $30,493,000 at December 31, 1999 and 1998, respectively. There were no securities held from a single issuer that represented more than 10% of stockholders' equity. NOTE C - LOANS Major classifications of loans are as follows:
(Dollars in thousands) 1999 1998 ---------- -------- Commercial loans $ 95,820 $ 85,110 Real estate - construction 15,266 13,439 Real estate - other 152,174 133,191 Consumer loans 55,520 62,481 Lease financing receivables 35,558 26,174 -------- -------- 354,338 320,395 Less: Allowance for loan losses (6,261) (5,877) -------- -------- $ 348,077 $ 314,518 ======== ========
Loan balances on which the accrual of interest has been discontinued amounted to approximately $1,207,000 and $1,316,000 at December 31, 1999 and 1998, respectively. Interest on these nonaccrual loans would have been approximately $141,000 and $176,000 in 1999 and 1998, respectively. Loan balances past due 90 days or more which are not on a nonaccrual status, but which management expects will eventually be paid in full, amounted to $175,000 and $546,000 at December 31, 1999 and 1998, respectively. Changes in the allowance for loan losses are summarized as follows: FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - LOANS - continued
(Dollars in thousands) 1999 1998 1997 ------------ ----------- --------- Balance at beginning of year $ 5,877 $ 5,900 $ 5,218 Provision charged to operating expenses 799 911 1,135 Recoveries of charged-off loans 178 245 83 Loans charged-off (593) (1,179) (536) ---------- ---------- ---------- Balance at end of year $ 6,261 $ 5,877 $ 5,900 ========= ========= =========
The Bank identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The accrual of interest is discontinued on impaired loans and no income is recognized until all recorded amounts of interest and principal are recovered in full. Retail loans and residential mortgages have been excluded from these calculations. The balance of impaired loans was $648,000, $919,000, and $1,121,000 at December 31, 1999, 1998, and 1997, respectively. The associated allowance for loan losses for impaired loans was $305,000, $286,000, and $306,000 at December 31, 1999, 1998, and 1997, respectively. During 1999, activity in the allowance for impaired loan losses included a provision of $85,000, write offs of $70,000 and recoveries of $3 thousand. Interest income of $0 was recorded in 1999, while contractual interest in the same period amounted to $89,000. Cash collected on impaired loans in 1999 was $188,000, all of which was applied to principal. During 1998, activity in the allowance for impaired loan losses included a provision of $150,000, write offs of $170,000 and recoveries of $0. Interest income of $25,000 was recorded in 1998, while contractual interest in the same period amounted to $129,000. Cash collected on impaired loans in 1998 was $836,000, of which $811,000 was applied to principal and $25,000 was applied to principal. In the normal course of business, the Bank makes loans to certain officers, directors, and their related interests. All loan transactions entered into between the Bank and such related parties were made on the same terms and conditions as transactions with all other parties. In management's opinion, such loans are consistent with sound banking practices and are within applicable regulatory lending limitations. The balance of these loans at December 31, 1999 and 1998, was approximately $8,516,000 and $6,025,000, respectively. In 1999, new loans and principal payments amounted to approximately $3,344,000 and $853,000, respectively. NOTE D - PREMISES AND EQUIPMENT Premises and equipment are summarized as follows: (Dollars in thousands) 1999 1998 ------------ ---------- Premises $ 12,456 $ 10,813 Equipment 7,962 7,675 ---------- ---------- 20,418 18,488 Less Accumulated depreciation (9,974) (8,909) ---------- ---------- $ 10,444 $ 9,579 ========== ========== FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE E - DEPOSITS At December 31, 1999, the scheduled maturities of certificates of deposit are as follows: (Dollars in thousands) 2000 $ 108,416 2001 23,481 2002 4,235 2003 4,225 2004 and thereafter 3,282 ---------- $ 143,639 NOTE F - SHORT-TERM BORROWINGS AND CREDIT FACILITY Securities sold under agreements to repurchase are generally overnight transactions. These borrowings had interest rates of approximately 4.0%, 3.8% and 3.3% and balances of $3,365,000, $2,795,000 and $7,625,000 at December 31, 1999, 1998 and 1997, respectively. Daily average balances and weighted average interest rates for the years ended December 31, 1999, 1998 and 1997 were $2,741,000, $3,019,000 and $8,560,000 and 4.0%, 3.8% and 3.3%, respectively. The Bank, as a member of the FHLB, maintains a credit facility secured by the Bank's mortgage-related assets. Additionally, the FHLB offers several other credit related products which are available to the Bank. FHLB borrowings provide additional funds to meet the Bank's liquidity needs. As of December 31, 1999 the amount outstanding under the Bank's credit facility with the FHLB was $10.0 million as compared to $0 during the same period in 1998. Other FHLB borrowings for the period totaled $6.7 million compared to $5.0 million in 1998. During 1999 and 1998, total average FHLB advances were approximately $9.3 million and $5.2 million, respectively and consisted of short and long term advances representing a combination of maturities. The average interest rate for 1999 and 1998 on these advances was approximately 6.0% and 6.5% respectively. The Bank currently has a maximum borrowing capacity with the FHLB of approximately $117.0 million. FHLB advances are collateralized by a pledge on the Bank's entire portfolio of unencumbered investment securities, certain mortgage loans and a lien on the Bank's FHLB stock. NOTE G - OTHER NON-INTEREST EXPENSE The components of other non-interest expense are detailed as follows:
(Dollars in thousands) 1999 1998 1997 --------- ---------- ---------- Purchased services $ 903 $ 826 $ 833 Telephone, postage, and supplies 701 669 583 Marketing and corporate communications 689 652 406 Loan and deposit supplies 455 476 436 Director costs 256 262 276 Bank shares tax 439 259 290 FDIC Insurance 48 45 43 Other 536 745 719 ------- ------- ------- $ 4,027 $ 3,934 $ 3,586 ====== ====== ======
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES The components of income tax expense are detailed as follows:
(Dollars in thousands) 1999 1998 1997 ---------- ---------- --------- Current expense $ 2,106 $ 2,255 $ 2,124 Deferred expense (56) (155) (235) -------- -------- -------- Total tax expense $ 2,050 $ 2,100 $ 1,889 ======== ======== ========
The income tax provision reconciled to the statutory federal rate was as follows:
1999 1998 1997 ---------- ---------- ------- Statutory rate 34.0% 34.0% 34.0% Increase (decrease) in tax rate from Tax-exempt loan and investment income (2.3) (2.0) (3.0) Tax credits (2.2) (0.9) (3.0) Other, net (1.3) (1.6) 1.0 ----- ----- ----- Applicable income tax rate 28.2% 29.5% 29.0% ==== ==== ====
The net deferred tax asset consists of the following:
(Dollars in thousands) 1999 1998 ---------- ----------- Allowance for possible loan losses $ 1,853 $ 1,715 Unrealized gain loss on securities available-for-sale 1,491 (150) Deferred loan fees 119 158 Accrued pension and deferred compensation 389 421 Depreciation 240 181 Other - 21 ------- ------- 4,092 2,346 Valuation allowance - - ------- ------- Total deferred tax asset 4,092 2,346 ------- ------- Bond accretion (81) (32) ------- ------- Total deferred tax liabilities (81) (32) ------- ------- Net deferred tax asset $ 4,011 $ 2,314 ======= =======
NOTE I - CAPITAL REQUIREMENTS The Corporation and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - CAPITAL REQUIREMENTS - continued corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets, and Tier I capital to average quarterly assets. Management believes that the Corporation and the Bank meet all capital adequacy requirements to which it is subject, as of December 31, 1999. As of December 31, 1999, the most recent notification from the federal banking agencies categorized the Corporation and the Bank as well capitalized under the regulatory framework for corrective action. To be categorized as adequately capitalized the Corporation and the Bank must maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since the notification that management believes have changed the institutions category. The Corporation's actual capital amounts and ratios are presented below:
To Be Well Capitalized Under For Capital Prompt Corrective (Dollars in thousands) Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of December 31, 1999: Total Capital (to Risk Weighted Assets) Corporation $ 45,882 11.98% $ 30,632 =>8.00% $ 38,291 N/A Bank $ 44,908 11.73% $ 30,629 =>8.00% $ 38,286 =>10.00% Tier I Capital (to Risk Weighted Assets) Corporation $ 41,071 10.73% $ 15,316 =>4.00% $ 22,974 N/A Bank $ 40,104 10.47% $ 15,315 =>4.00% $ 22,972 =>6.00% Tier I Capital (to Average Assets) Corporation $ 41,071 8.48% $ 19,379 =>4.00% $ 24,223 N/A Bank $ 40,104 8.05% $ 19,930 =>4.00% $ 24,913 =>5.00% As of December 31, 1998: Total Capital (to Risk Weighted Assets) Corporation $ 43,742 12.95% $ 27,027 =>8.00% $ 33,784 N/A Bank $ 42,638 12.62% $ 27,024 =>8.00% $ 33,780 =>10.00% Tier I Capital (to Risk Weighted Assets) Corporation $ 39,431 11.67% $ 13,513 =>4.00% $ 20,270 N/A Bank $ 38,327 11.35% $ 13,512 =>4.00% $ 20,268 =>6.00% Tier I Capital (to Average Assets) Corporation $ 39,431 8.59% $ 18,369 =>4.00% $ 22,961 N/A Bank $ 38,327 8.36% $ 18,344 =>4.00% $ 22,930 =>5.00%
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of the estimated fair value of an entity's assets and liabilities considered to be financial instruments. For the Corporation, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in SFAS No. 107. However, many such instruments lack an available trading market, as characterized by a willing buyer and seller engaging in an exchange transaction. Also, it is the Corporation's general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities. Therefore, the Corporation had to use significant estimations and present value calculations to prepare this disclosure. Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values. Fair values have been estimated using data which management considered the best available and estimation methodologies deemed suitable for the pertinent category of financial instrument. The estimated fair value of cash and cash equivalents, deposits with no stated maturities, Repos and FHLB advances and commitments to extend credit, and outstanding letters of credit has been estimated to equal the carrying amount. Quoted market prices were used to determine the estimated fair value of investment securities held-to-maturity and available-for-sale. Fair values of net loans and deposits with stated maturities were calculated using estimated discounted cash flows based on the year-end offering rate for instruments with similar characteristics and maturities. The estimated fair values and carrying amounts are summarized as follows:
1999 1998 ----------------------- ----------------------- (Dollars in thousands) Fair Carrying Fair Carrying Value Amount Value Amount ----- ------ ----- ------ Financial Assets Cash and cash equivalents $ 32,257 $ 32,257 $ 30,681 $ 30,681 Investment securities held-to-maturity 4,535 4,402 7,606 7,406 Investment securities available-for-sale 108,638 106,638 102,380 102,380 Net loans 331,784 348,077 313,921 314,518 Financial Liabilities Deposits with no stated maturities 306,145 304,796 267,615 267,615 Deposits with stated maturities 142,815 143,637 152,005 150,783 Securities sold under repurchase agreements 3,365 3,365 2,795 2,795 FHLB advances 16,667 16,667 5,027 5,027 Off-Balance-Sheet Investments Commitments for extended credit and outstanding letters of credit 65,531 65,531 103,132 103,132
NOTE K - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK The Corporation is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers and reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK - continued financial statements when they become payable. Those instruments involve, to varying degrees, elements of credit and interest rate risks in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Unless noted otherwise, the Corporation does not require collateral or other security to support financial instruments with credit risk. The contract amounts are as follows:
(Dollars in thousands) 1999 1998 ------------ ------------ Financial instruments whose contract amounts represent credit risk Commitments to extend credit $58,731 $95,500 Standby letters of credit and financial guarantees written 6,800 7,632
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Corporation holds residential or commercial real estate, accounts receivable, inventory and equipment as collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held for those commitments at December 31, 1999, varies up to 100%; the average amount collateralized is 80%. Substantially all of the Corporation's loans, commitments, and commercial and standby letters of credit have been granted to customers in the Corporation's primary market area, Chester County, Pennsylvania. Investments in state and municipal securities also involve governmental entities within the Corporation's market area. The concentrations of credit by type of loan are set forth in Note C - Loans. Although the Corporation has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the economic sector. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS The Corporation has one stock option plan, the 1995 Stock Option Plan. This plan allows the Corporation to grant up to 807,500 fixed stock options to key employees and directors. The options have a term of ten years and become exercisable six months after grant. The exercise price of each option equals the average between the high and low bid price of the Corporation's stock on the date of grant. The Corporation has elected to account for its stock option plan under APB Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized for its stock option plan. Had compensation cost for the plan been determined based on the fair value of the options at the grant dates consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Corporation's net income and earnings per share would have been:
1999 1998 1997 --------- --------- ------- Net income (in thousands) As reported $ 5,217 $ 5,016 $ 4,615 Pro forma $ 4,196 $ 4,016 $ 4,053 Earnings per share (Basic) As reported $ 1.14 $ 1.09 $ 1.00 Pro forma $ 0.92 $ 0.87 $ 0.88 Earnings per share (Diluted) As reported $ 1.13 $ 1.07 $ 1.00 Pro forma $ 0.91 $ 0.85 $ 0.88
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yield of 2.40%, 2.20% and 2.82%; expected volatility of 0.65, 0.48 and 0.48; risk-free interest rate of 5.68%, 4.39% and 5.99%; and an expected life of 4 1/2 years, 4 1/2 years and 5 years. Information about stock options outstanding at December 31, 1999, is summarized as follows:
Weighted-Average Outstanding Exercise Price ----------- -------------- Balance 1/1/97 120,000 $ 9.93 Granted 125,000 15.51 Exercised (16,600) 9.55 Cancelled -- -- ------- ----- Balance 1/1/98 228,400 13.01 Granted 233,000 18.76 Exercised (33,400) 12.16 Cancelled (37,600) 20.05 ------- ----- Balance 1/1/99 390,400 15.84 Granted 216,150 15.21 Exercised (10,400) 13.82 Cancelled (52,398) 19.73 ------- ----- Balance 12/31/99 543,752 $15.25 ======= =====
The weighted average fair value of options granted during 1999, 1998 and 1997 was $7.43, $6.10 and $3.53, respectively. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS - continued Options Outstanding -------------------
Weighted-Average Range of Number Remaining Weighted-Average Number Weighted-Average Exercise-Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price ---------------- ----------- ----------------- ---------------- ----------- --------------- $ 8.66 - $11.11 80,200 6.28 years $10.00 80,200 $10.00 $14.75 - $14.75 160,750 9.75 years $14.75 - - $15.50 - $15.83 146,100 8.13 years $15.61 117,947 $15.59 $17.69 - $21.13 156,702 8.72 years $18.13 144,702 $18.15 ------- ------- ----- 543,752 342,849 $15.36 ======= ======= =====
NOTE M - EARNINGS PER SHARE The following table illustrates the reconciliation of the numerators and denominators of the basic and diluted EPS computations:
For the Year Ended December 31, 1999 ------------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS: Net income available to common stockholders $5,217,139 $4,571,929 $1.14 Effect of Dilutive Securities Add options to purchase common stock -- 52,441 (.01) --------- --------- ---- Diluted EPS: $5,217,139 $4,624,370 $1.13 ========= ========= ====
54,334 anti-dilutive weighted shares have been excluded in the computation of 1999 diluted EPS because the options' exercise price was greater than the average market price of the common shares.
For the Year Ended December 31, 1998 ----------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS: Net income available to common stockholders $5,016,039 4,609,874 $1.09 Effect of Dilutive Securities Add options to purchase common stock -- 66,157 (.02) --------- --------- ---- Diluted EPS: $5,016,039 4,676,031 $1.07 ========= ========= ====
15,633 anti-dilutive weighted shares have been excluded in the computation of 1998 diluted EPS because the options' exercise price was greater than the average market price of the common shares. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - EARNINGS PER SHARE - continued
For the Year Ended December 31, 1997 ------------------------------------------ Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS: Net income available to common stockholders $4,615,000 4,580,814 $1.00 Effect of Dilutive Securities Add options to purchase common stock -- 38,806 -- --------- --------- ---- Diluted EPS: $4,615,000 4,619,620 $1.00 ========= ========= ====
30,945 anti-dilutive weighted shares have been excluded in the computation of 1997 diluted EPS because the options' exercise price was greater than the average market price of the common shares. NOTE N - REGULATORY MATTERS The Bank is required to maintain average reserve balances with the Federal Reserve Bank based upon deposit levels and other factors. The average amount of those reserve balances for the years ended December 31, 1999 and 1998, was approximately $4,885,000 and $3,753,000, respectively. Dividends are paid by the Corporation from its assets which are mainly provided by dividends from the Bank. However, certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances. The Bank, without the prior approval of regulators, can declare dividends to the Corporation totaling approximately $5,088,000 plus additional amounts equal to the net earnings of the Bank for the period from January 1, 1999, through the date of declaration, less dividends previously paid in 1999. NOTE O - EMPLOYEE BENEFIT PLANS 1. Qualified The Corporation has a qualified deferred salary savings 401(k) plan (the "401(k) Plan") under which the Corporation contributes $0.75 for each $1.00 that an employee contributes, up to the first 5% of the employee's salary. The Corporation's expenses were $266,000, $181,000, and $152,000 in 1999, 1998, and 1997, respectively. The Corporation also has a qualified defined contribution pension plan (the "QDCP Plan"). Under the QDCP Plan, the Corporation makes annual contributions into the 401(k) Plan on behalf of each eligible participant in an amount equal to 3% of salary up to $30,000 in salary plus 6% in excess of $30,000 up to $160,000. Contribution expense in 1999, 1998 and 1997 under the QDCP Plan was $246,000, $199,000 and $138,000, respectively. The Corporation may make additional discretionary employer contributions subject to approval of the Board of Directors. 2. Non-Qualified The Corporation makes annual contributions to a non-qualified defined contribution Plan ("the NQDCP Plan ") equal to 3% of the participant's salary up to $160,000 plus 9% in excess of $160,000. Contribution expense for 1999, 1998 and 1997 under the NQDCP Plan was $49,000, $43,000 and $39,000, respectively. The Corporation may make additional discretionary employer contributions subject to approval of the Board of Directors. FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE P - COMMITMENTS AND CONTINGENCIES The Corporation has employment agreements with several of the Corporation's Officers. These agreements provide for severance payments upon termination of employment under certain circumstances or a change of control as defined. Other The Corporation is involved in certain litigation arising in the ordinary course of business. In the opinion of management, the outcome of this litigation will not have a significant effect on the accompanying financial statements. NOTE Q - CONDENSED FINANCIAL INFORMATION - PARENT CORPORATION ONLY Condensed financial information for First West Chester Corporation (parent Corporation only) follows:
CONDENSED BALANCE SHEETS (Dollars in thousands) December 31 --------------------------- 1999 1998 ------------ ------------ ASSETS Cash and cash equivalents $ 290 $ 260 Investment securities available for sale, at market value 396 741 Investment in subsidiaries, at equity 37,380 38,624 Intercompany loan 110 105 Other assets 73 23 -------- -------- Total assets $ 38,249 $ 39,753 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities $ 67 $ 30 Stockholders' equity 38,182 39,723 -------- -------- Total liabilities and stockholders' equity $ 38,249 $ 39,753 ======== ========
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE Q - CONDENSED FINANCIAL INFORMATION - PARENT CORPORATION ONLY - continued CONDENSED STATEMENTS OF INCOME
(Dollars in thousands) Year ended December 31 ----------------------------------------- 1999 1998 1997 ------------ ------------ ------------ INCOME Dividends from subsidiaries $ 3,517 $ 1,948 $ 2,022 Dividends from investment securities 46 1 1 Investment securities gains, net 32 23 182 Other income 8 35 16 --------- --------- --------- Total income 3,603 2,007 2,221 --------- --------- --------- EXPENSES Other expenses 223 203 169 --------- --------- --------- Total expenses 223 203 169 --------- --------- --------- Income before equity in undistributed income of subsidiaries 3,380 1,804 2,052 EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 1,837 3,212 2,563 --------- --------- --------- NET INCOME $ 5,217 $ 5,016 $ 4,615 ========= ========= =========
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE Q - CONDENSED FINANCIAL INFORMATION - PARENT CORPORATION ONLY - continued CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31 --------------------------------------- (Dollars in thousands) 1999 1998 1997 ------------ ------------ ---------- OPERATING ACTIVITIES Net income $ 5,217 $ 5,016 $ 4,615 Adjustments to reconcile net income to net cash provided by operating activities Equity in undistributed income of subsidiary (1,837) (3,212) (2,563) Investment securities gains, net (31) (23) (182) (Increase) decrease in other assets (105) 114 (61) Increase in other liabilities 37 5 8 -------- -------- --------- Net cash provided by operating activities 3,281 1,900 1,817 -------- -------- --------- INVESTING ACTIVITIES Proceeds from sales and maturities of investment securities 206 - 510 Purchases of investment securities available for sale - (672) - -------- -------- --------- Net cash (used in) provided by investing activities 206 (672) 510 -------- -------- --------- FINANCING ACTIVITIES Intercompany loan 115 796 (933) Dividends paid (2,239) (2,144) (1,945) Effect of treasury stock transactions (1,333) 313 159 -------- -------- --------- Net cash used in financing activities (3,457) (1,035) (2,719) -------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30 193 (393) Cash and cash equivalents at beginning of year 260 67 460 -------- -------- --------- Cash and cash equivalents at end of year $ 290 $ 260 $ 67 ======== ======== =========
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE R - QUARTERLY FINANCIAL DATA (UNAUDITED) A summary of the unaudited quarterly results of operations is as follows:
1999 (Dollars in thousands, except per share) December 31 September 30 June 30 March 31 ----------- ------------ ------------- --------- Interest income $ 9,182 $ 8,909 $ 8,659 $ 8,357 Interest expense 3,817 3,642 3,557 3,527 Net interest income 5,366 5,266 5,102 4,830 Provision for loan losses 306 184 171 138 Investment securities gains, net 5 - 198 4 Income before income taxes 1,757 1,945 2,003 1,562 Net income 1,386 1,351 1,394 1,086 Per share Net income (Basic) $ 0.30 $ 0.30 $ 0.30 $ 0.24 Net Income (Diluted) 0.30 0.29 0.30 0.23 Dividends declared 0.125 0.125 0.120 0.120 1998 (Dollars in thousands, except per share) December 31 September 30 June 30 March 31 ----------- ------------ ------------- --------- Interest income $ 8,725 $ 8,472 $ 8,338 $ 8,240 Interest expense 3,640 3,588 3,482 3,424 Net interest income 5,085 4,884 4,856 4,816 Provision for loan losses 298 201 188 224 Investment securities gains (losses), net 85 5 - 3 Income before income taxes 1,855 1,727 1,837 1,625 Net income 1,308 1,252 1,276 1,179 Per share Net income (Basic) $ 0.28 $ 0.28 $ 0.27 $ 0.26 Net Income (Diluted) 0.28 0.26 0.27 0.26 Dividends declared 0.140 0.110 0.110 0.110
Report of Independent Certified Public Accountants Board of Directors First West Chester Corporation We have audited the accompanying consolidated balance sheets of First West Chester Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First West Chester Corporation and Subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Philadelphia, Pennsylvania January 27, 2000 EX-21 5 SUBSIDIARIES OF THE CORPORATION SUBSIDIARIES OF THE CORPORATION First National Bank of Chester County 9 North High Street P.O. Box 523 West Chester, PA 19381-0523 Turks Head Properties, Inc. 323 East Gay Street West Cheseter, PA 19381-0523 EX-23 6 CONSENT LETTER CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated January 27, 2000 accompanying the consolidated financial statements included in the 1999 Annual Report of First West Chester Corporation and subsidiaries on Form 10-K for the year ended December31, 1998. We hereby consent to the incorporation by reference of said reports in the Registration Statement of First West Chester Corporation on Forms S-8 (File No. 333-09241, effective July 31, 1996, File No. 333-15733, effective November 7, 1996, File No. 333-33411, effective August 12, 1997, File No. 333-69315, effective December 21, 1998). Philadelphia, Pennsylvania March 24, 2000 EX-27 7 FDS
9 FDS for First Chester County Corporation Formerly First West Chester Corporation 0000744126 First Chester County Corporation 1000 U.S. Dollars 12-Mos Dec-31-1999 Jan-01-1999 Dec-31-1999 1000 27,257 0 5,000 0 108,638 4,402 4,535 354,338 6,261 511,902 448,433 13,773 11,514 0 0 0 4,800 33,382 511,902 27,730 7,260 117 35,107 13,875 14,543 20,564 799 207 17,506 7,267 7,267 0 0 5,217 1.14 1.13 4.60 1,207 175 0 0 5,877 593 178 6,261 6,261 0 0
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